Deferral, Outsourcing and Making the U.S. Less Competitive

By September 27, 2010Economy, Taxation

The Wall Street Journal’s lead editorial today (subscription) is a thorough refutation of S.3816, the mistitled Creating American Jobs and Ending Offshoring Act, which the Senate is taking up. From “The Send Jobs Overseas Act“:

One of the two major parties in the world’s supposedly leading economy is trying to hold on to its majority by running against foreign investment and the free flow of capital. This is banana republic behavior.

We’re all for increasing jobs in the U.S., but the President’s plan reveals how out of touch Democrats are with the real world of tax competition. The U.S. already has one of the most punitive corporate tax regimes in the world and this tax increase would make that competitive disadvantage much worse, accelerating the very outsourcing of jobs that Mr. Obama says he wants to reverse.

And …

The real problem is a U.S. corporate tax rate that over the last 15 years has become a huge competitive disadvantage. The only major country with a higher statutory rate is Japan, and even its politicians are debating a reduction. A May 2010 study by University of Calgary economists Duanjie Chen and Jack Mintz for the Cato Institute using World Bank data finds that the effective combined U.S. federal and state tax rate on new capital investment, taking into account all credits and deductions, is 35%. The OECD average is 19.5% and the world average is 18%.

The Cato Institute report is “U.S. Effective Corporate Tax Rate on New Investments: Highest in the OECD.”

The National Association of Manufacturers last week registered its opposition to the legislation through a letter to the Senate here.

UPDATE: The Hill cites the NAM’s opposition in its Monday round-up report, “Money in the Morning“:

Business groups aren’t happy about it, reports The Financial Times. While the bill would provide a payroll tax exemption for companies that that bring overseas jobs back home, it would also limit tax deferral for U.S. companies’ overseas profits and deductions for U.S. plant closings. “The National Association of Manufacturers took specific aim at the provision on the deferral of taxes on foreign income, saying it would ‘place US affiliates at a cost disadvantage vis-à-vis their foreign-based competitors…’”

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