Dr. Summers and the Usual, Unfortunate Tax Rhetoric

By August 3, 2009Economy, Taxation

From NBC’s “Meet the Press,” with host David Gregory interviewing Larry Summers, director of the National Economic Council (our emphasis):

MR. GREGORY: Given the deficit, how big the deficit is, how big it’s projected to be, can there be sustained growth in this economy unless the deficit is reduced?

DR. SUMMERS: Certainly there can be sustained growth, and we can start laying a foundation for sustained growth in the next couple of years by making sure that there is an adequate level of demand in the economy. For the medium term, the way in which we need to make sure that that growth is stable is to do something about the deficit. But the way you do something about the deficit, David, is you go and you look at the large sections of the federal budget. You look at health, you look at health care, as I talked about. You look at entitlements. You look at the presence of substantial loopholes that, for example, enable some companies to hide income overseas and not pay taxes on it to the United States and actually get an economic incentive to move some of their production abroad.

That’s a lot of looking.

It’s disappointing to see the sensible Larry Summers use the populist, anti-business talking point about businesses manipulating tax breaks to move jobs out of the United States.  The White House is too ready to hide behind the complexity of the U.S. tax system to beat up on businesses that earn money from overseas operations. As the NAM’s “Manufact” on international taxation explains:

Most developed countries charge little or no tax on foreign earnings so non-U.S. global companies generally pay taxes only where income is earned. In contrast, the United States has a worldwide tax system that taxes income wherever it is earned, potentially subjecting U.S. businesses to both U.S. and foreign taxes.

• U.S. tax laws level the playing field by allowing companies to temporarily “defer” U.S. taxes on income from their foreign operations while they serve customers and consumers in foreign markets. When the earnings are brought back to the United States, the worldwide American company pays U.S. tax net of any foreign tax paid on the foreign earnings.

• The Administration proposes some $200 billion in tax increases on worldwide American companies, including fundamental changes foreign to international tax policies. The Administration claims longstanding tax policy encourages U.S. companies to move jobs overseas. In fact, the opposite is true. American companies establish overseas operations to grow their businesses by obtaining new foreign customers and to better serve existing customers.

If the Administration plans to raise taxes on companies with international operations — which create jobs here in the United States — it ought to say so directly. Even on the Sunday talk shows.

For more on the Administration’s misleading rhetoric about “loopholes” and “tax incentives for moving jobs overseas,” see our “Bringing Us Together” series from May.

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