The Wall Street Journal today covers the ins and outs of tax deferral, a critically important issue for businesses with an international presence, “Business Fends Off Tax Hit.” Under the U.S. global tax system, taxation of overseas earnings are deferred until those earnings are brought home to the United States. In May, President Obama detailed his plans to raise taxes on those earnings by using aggressively populist — and misleading — rhetoric about “companies that ship jobs overseas.”
As John Engler, president of the National Association of Manufacturers, said at the time:”President Obama’s proposal to impose more than $100 billion in new taxes on corporate foreign earnings will destroy jobs in the United States and make U.S. companies less competitive globally.” (NAM release; NAM Manufacts sheet on deferral.)
Today’s Journal piece details the response from the business world, taken aback that the Administration would propose such a tax increase during a recession and unhappy at the President’s repeated lumping together of “tax loopholes” and international tax policy. As Honeywell Chief Executive David Coate, an Obama supporter, said, “You can’t love jobs and hate those who create them.” Concern was especially high in the high-tech sector.
Companies ranging from Microsoft Corp. to General Electric Co. to International Business Machines Corp. put the topic at the top of their Washington agendas. Many CEOs and business lobbyists say the proposal — and the rhetoric used to push it — betrayed a tone-deafness on business issues among the president and his advisers. White House officials say the issue has often dominated discussions during meetings with CEOs.
Obama aides say the administration has set the idea aside for now, but may return to it as part of a broader tax overhaul sometime next year. The White House had billed the proposed change as an overdue fix to the tax code and potentially a key revenue-raiser.
“This has gone all of a sudden from red-hot to white-cold,” says Michael Klayko, chief executive of Brocade Communications Systems Inc., a large data-storage company. But he says he is concerned that if the proposed tax changes get entangled in the health-care overhaul, “it could go back to red-hot again.”
With federal deficit spending running at unprecedented (peace-time) levels, yes, the coals of revenue raising are probably only banked.
UPDATE (12:34 p.m.): JimPethokoukis of Reuters tweets, “Obama is dumping plan to hike corporate taxes by $20b a year. Why? 1) Dem-friendly techs screamed; 2) VAT ion its way so wait w/ big change”
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