Posted on 05/06/2009 7:10:24 AM PDT by SeekAndFind
In the name of tax reform, Pres. Barack Obama has announced $190 billion of tax hikes on many of the biggest U.S. employers. By reducing after-tax profits, these tax hikes could hammer stock prices that reflect investor expectations of future profits.
Among the employers in Obama’s crosshairs: Aetna, Alcoa, Allstate, American Express, Berkshire Hathaway, Best Buy, Cisco Systems, Coca-Cola, Costco Wholesale, Dell, Dow Chemical, DuPont, Exxon Mobil, Ford, General Motors, GMAC, Hewlett-Packard, Honeywell, IBM, Intel, Johnson & Johnson, Kraft Foods, Kroger, McDonald’s, Merck, Microsoft, Motorola, News Corp., PepsiCo, Pfizer, Proctor & Gamble, Safeway, Sears, Sprint Nextel, Supervalu, Sysco, Target, Time Warner, Walgreens, and Walt Disney.
The stocks of these companies are in millions of portfolios held by individual investors, mutual funds, and pension funds, as well as endowments at colleges, hospitals, museums, and other institutions. Obama’s business-tax hike will hit Americans whose jobs and pensions depend on these companies’ success — particularly in tough times. Colleges will have a harder time keeping tuition affordable if Obama hammers their portfolio holdings, and hospitals will be under more pressure too.
Obama claims his tax hikes will “level the playing field.” He reasons that since U.S.-based companies doing business exclusively in the U.S. don’t get to defer U.S. taxes on profits earned overseas, U.S..-based multinationals shouldn’t be able to defer taxes either. He wants all U.S.-based companies to be fully subject to U.S. business tax rates that are among the highest in the world.
But U.S.-based multinationals are already paying taxes in the countries where they operate. Almost all countries impose taxes based on residency; you pay taxes where you live or operate. The United States is the major exception, imposing taxes based on citizenship. This means an American stationed abroad must pay taxes both to the country where he or she lives as well as to the United States — double taxation. Although an American can claim a credit on a U.S. tax return for foreign taxes paid, he or she will still have to deal with tax bills from two countries. In 2006, Pres. George W. Bush signed a tax increase on Americans living abroad, and the New York Times reported there was an increase in the number of Americans renouncing their U.S. citizenship.
This gives you an idea how corporate decision-makers are likely to feel about double taxation. A U.S.-based multinational company operating abroad must pay taxes to the country where it operates. Obama wants U.S.-based multinationals to pay taxes on their operations abroad as if those operations were in the U.S. The bottom line is taxes to two countries — heftier taxes, despite whatever credits might be applicable.
In the event Obama were able to impose such double taxation on the offshore operations of U.S.-based multinationals, the consequences could be devastating. U.S.-based business could be wiped out around the world because of the difficulty of competing with offshore-based rivals that have to pay taxes only to the (probably lower-tax) country where they have operations. Taxes are just another cost of doing business, and if they make the total cost of doing business excessively high, a company is bound to lose market share and ultimately withdraw from a market. Large numbers of U.S. jobs are related to business being conducted overseas, so if overseas business contracts, jobs are going to be lost here in America.
Obama, who lacks business experience, seems to imagine that the only reason U.S.-based multinationals have offshore operations is to achieve tax savings. Actually, a company is in a better position to compete with local firms if it has an operation close to its market, compared with a U.S. firm that ships its goods thousands of miles away. An offshore operation is more likely to understand local market conditions, tastes, and trends. Obama’s double taxation would provide perverse incentives for U.S.-based companies to give up knowledge, relationships, and other advantages they spent years developing firsthand in world markets.
page Another possibility is that Obama’s double taxation triggers an exodus of U.S.-based multinationals that re-incorporate offshore. We have seen how, during the past several decades, high New York City taxes played a major role in the dramatic exodus of Fortune 500 headquarters to lower-tax states. More recently, we have seen how California’s high taxes have stimulated an exodus of companies from that state, contributing to high-tech “clusters” elsewhere in the country.
#ad#Consider how double taxation would affect incentives facing U.S.-based multinationals that make more money abroad than they do in the U.S: General Motors, for example. Why would GM endure double taxation on its profitable overseas operations for the sake of its unprofitable U.S. operation? If Obama had his way with double taxation, we might wake up suddenly to find that GM had become a Swiss-based corporation that walked away from its U.S. operation, leaving it in the hands of the UAW and the U.S. Treasury (or maybe the post office). There could be many defections from the Fortune 500 list.
By undermining the profitability of U.S.-based multinationals, Obama’s business-tax hikes would drive increasing numbers of Americans to invest in more profitable offshore-based companies. According to the Commerce Department’s Bureau of Economic Analysis, U.S. investors already hold some $5.1 trillion of stock in offshore-based companies. This number could go up significantly. An accelerated outflow of capital from the U.S. would be bad news for U.S. capital markets and stock prices.
People and capital go where they’re welcome, and when they no longer feel welcome, they move on. Obama can talk all he wants about why high taxes are fair taxes, but if they’re significantly more burdensome than what’s being imposed elsewhere, employers and jobs are going to go away, and all of us here will suffer.
— Jim Powell, a senior fellow at the Cato Institute, is the author of FDR’s Folly and Greatest Emancipations, among other books.
bye bye jobs.
Part of the process of preventing capital flight when the myriad Fed/Treasury schemes inevitably produce hyperinflation and a dollar crash.
I didnt see Heinz on the list.
TerAYza may be forced to cut John Effin’s fun money allowance.
Serves 'em right.
AND - the real reason that the US (and others) are so keen on breaking through Swiss Bank Secrecy laws!
The so-called “trickle down economics” label was pinned on Reagan-era economic policy, but it is really just “economics.” When the producers produce, everyone benefits. If you tax and demonize the producers, they produce less, and the effects will be felt all the way through the economy - lost jobs, lower stock prices and lost pension fund equity, less borrowing, etc., etc. Obama and his team know this, but ideology trumps economy with this crowd. We have one foot in the socialism grave and another one on a banana peel.
Hate to say it again, but we deserve this. By “we,” I mean Americans - the Obama voters, wishy washy moderates and conservatives who didn’t hold our leadership accountable for abandoning conservative principles, especially fiscal responsibility, thus leading to Obama’s victory.
We are at a turning point in the history of the greatest nation on earth. Hang on, folks. It’s gonna be a bumpy ride.
Responsble companies will take a stand....and eventually Obama will be defeated...... I doubt that he will ever admit the benefits of low taxation. Socialists and Marxists never did and never will....
He has an economic death wish for America.
“I’d move my company to Ireland in a heartbeat.....”
As would I! That 12.5% corporate tax rate works for me!
Wow, nice job. Something tells me the “Socialist Realism School” of art is about to make a comeback.
They will, to a company, have to initiate REDUCTIONS IN FORCE (i.e. FIRINGS and LAYOFFS) of American employees to cover these increased taxes. To balance the bottom line or stay in the black, you have to make it up somewhere.
This fool in the White House is really a work of art, eh? Everything he touches seems to turn to guano.
Where did these people get their MBAs, at Sears?
They just dont know how things work. How simplistic. This is almost like their TARP drafting.
Tax policies that are driving business from CA and MI will kill it for the entire country. No worries, though — He, The One, is the Messiah and can NEVER be wrong!
The Republic of Texas sounds better with a corporate tax rate of 0%......and no income tax...
Imagine all corporations flocking to Texas.....
I can dream can't I?
Public schrools, newspapers, and MSM have a dramatic impact on the naivete of the people. May God show the light to the ignorant.
Are you paying attention now, corporate America, or do I have to hit you over the head again with my baseball bat until you freakin’ get it...
Total lunacy....
The general public is not YET feeling the effects of all of Obama’s foolish policies.....but they WILL.
Call for REFORM in 2010 - 2012!!!!!!!!!!!!!!!!!!!!!!!!!!
Would love to get the take of some of the Silicon Valley types of US firms with overseas ops. and profit generating centers, who supported Obama and gave him money and claimed he was the best thing since iced tea.
Now watch their companies really begun to suffer. Will the re-cant? (Probably NO. Too much pride involved)....
What’s “US Based” about companies which fire Americans and send factories, jobs and know-how to China?
They don’t like this, then become real American companies again!
Make stuff in America. And quit whining! Sheesh.
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