From The Irish Echo Online, the U.S.-based publication of Irish news, “Obama tax move targets Ireland too”

May 6, 2009 Washington, D.C. — President Barack Obama placed Ireland straight in the crosshairs this week as he took aim at reforming corporate tax laws regulating overseas profits generated by U.S. companies.

And there were indications from Dublin that the Irish government was prepared to battle what is clearly more bad news for the country’s embattled economy by calling for help from sympathetic members of Congress.

“The economy has been dealt a serious blow with the U.S. government signaling it is to target €2.5 billion of Irish tax revenues in broad economic reforms,” the Cork-published Irish Examiner reported.

From The Irish Herald, “Obama to visit Ireland.” Good timing!

To be fair, the story is based solely Congressman Richard Neal (D-MA) saying, you bet he’ll come. And it is a safe bet. Rep. Neal had interesting things to say about the President’s news conference on taxation.

“Ireland should not have been on that list,” he said, before pointing out the significance of the fact President Obama did not mention Ireland at his press conference about tightening up tax rules. Asked whether Ireland could rely on him to lobby the US government, Congressman Neal was hesitant, but did indicate that he is not keen to see all of these companies being forced back into the States. “That’s a pretty heavy lift” he said. “The idea is to keep American companies competitive in a global economic environment.”

And, as noted below, the White House quickly retreated and retracted the targeting of Ireland (and Holland and Bermuda). Now if the President would do the same for U.S. corporations with international operations.

From the Royal Netherlands Embassy in Washington, “The Netherlands: attractive location for foreign investors, but not a low-tax country“:

On May 3rd, the White House presented a fact-sheet titled ‘Leveling the playing field’, which states among other things that The Netherlands is a ‘low-tax country’. That led to some misinterpretation.

Dutch Ambassador to the USA, Renée Jones-Bos, conveyed this message to the White House, the Treasury Department and the Department of State. The White House has adjusted the fact sheet accordingly.

Seems like a pretty fundamental mistake. All the news reports we’ve seen have been based on comments from Dutch government sources. Will the White House or Treasury comment?

From Dutch News:

The United States is to remove the Netherlands from its list of tax havens after protests from the Dutch ambassador in Washington, junior finance minister Jan Kees de Jager told reporters late on Tuesday night.

On Monday US president Barack Obama had announced a series of measures to shut down offshore tax havens which could have implications for American firms with Dutch subsidiaries.

A briefing note attached to the announcement stated that 83 of the 100 largest US corporations have subsidiaries in tax havens, most notably the Cayman Islands, Bermuda, Ireland and the Netherlands.

The Dutch government reacted angrily, with officials noting its corporate tax rate is 25.5 percent, about average by European standards and lower than the United States’ 35 percent. A finance spokesman for the Dutch government said the Obama Administration will remove the Netherlands from the list.

The above story, “Obama pakt Nederland aan” is from the Algemeen Dagblad, a major daily. The headline is, more or less, “Obama Takes on the Netherlands.” (proceeds, tackles, picks on) It’s big news in Holland.

Here’s more, a story that just moved from AFP, “US To Remove Netherlands From “Tax Haven” List – Minister”

THE HAGUE (AFP)–The U.S. is to remove the Netherlands from a list of corporate tax havens where it figured owing to a “misunderstanding”, the Dutch finance ministry said Wednesday.

“It is a misunderstanding that the United States regrets. It has never considered the Netherlands as a tax haven nor as a country that imposes particularly low taxes on companies,” ministry spokesman Marcel Homan told AFP.

“The White House has informed us that it will edit the list today.”

Restoring our ties with Europe, one country at a time.

Wall Street Journal editorial, “Obama’s Global Tax Raid“:

The explicit goal of this plan is to reduce the incentive for U.S. companies to invest abroad, which Mr. Obama derisively calls “shipping jobs overseas.” Foreign companies may relish the loss of U.S. corporate competitiveness that his proposal will bring in the short term. But in the long term, reducing U.S. investment globally will hurt everyone. And that investment is a two-way street…

Some of Mr. Obama’s advisers understand all this, but then their real goal isn’t tax reform or U.S. competitiveness. It’s a revenue grab, one made easier by the fact that overseas tax “avoidance” is easily demagogued. To that political end, Mr. Obama conflates tax deferral with the offshoring of jobs — hence the sly reference to Bangalore, India. With trillions of dollars of new spending, the White House and Treasury are desperate for new tax sources to pay for it all.

But even as a revenue raiser, this is likely to fail. Fewer companies will keep their headquarters in the U.S., especially small or mid-sized firms that can slip away without becoming a political target. Those companies that can’t flee will sooner or later demand relief from Congress, which will be happy to create even more loopholes.

The editorial also includes an informative discussion of U.S. investing in the Netherlands and the Dutch investing in the United States. Suffice it to say, the President’s proposal discourages both.

Earlier posts on the President’s tax proposals.

A statement from Senator Max Baucus (D-MT), chairman of the Senate Finance Committee:

“The President’s proposals highlight an important point – our corporate international tax system needs reforming. There are a number of Finance Committee ideas reflected here, such as the proposal to address offshore tax evasion and making the R&D credit permanent for businesses, but further study is needed to assess the impact of this plan on U.S. businesses,” said Baucus. “I want to make certain that our tax policies are fair and support the global competitiveness of U.S. businesses. These policies must be designed to encourage economic growth and create good‐paying jobs Americans need right now. The proposals announced by the President today set the table for tax reform, and I look forward to sitting down with the Administration soon to take up these issues.” 

The Washington Post’s lead editorial is entitled, “Corporate Tax Reform,” with the secondary headline, “The president’s tax plan can be the start of an important discussion.”

OK. But you don’t start an important conversation by punching your potential talking partner in the stomach and calling him names. From the President’s remarks:

And yet, even as most American citizens and businesses meet these responsibilities, there are others who are shirking theirs. And many are aided and abetted by a broken tax system, written by well-connected lobbyists on behalf of well-heeled interests and individuals.  It’s a tax code full of corporate loopholes that makes it perfectly legal for companies to avoid paying their fair share.  It’s a tax code that makes it all too easy for a number — a small number of individuals and companies to abuse overseas tax havens to avoid paying any taxes at all.  And it’s a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York.

The President’s presentation yesterday clearly sought to conflate two separate issues, the taxation of U.S. companies with a global presence (most prominently, the deferral issue), and the “tax haven” issue. He appeared on stage with the IRS Commissioner, Douglas Shulman, sending a clear, intended message that the problem he’s addressing is one of corporate scofflaws, that is, bad actors.

In October 2007, House Ways & Means Chairman Charles Rangel unveiled broad changes of the U.S. tax code and corporate taxation, a legislative proposal, the Tax Reduction and Reform Act. In his news release, he said:

This legislation will provide tax relief to more than 90 million working families and cut the corporate tax rate to help American companies stay competitive internationally. For too long, hardworking families have struggled to keep pace with the rising cost of living in America. This legislation would put money back in their pockets to combat the growing economic insecurity gripping our nation.

The NAM issued a statement reacting to Chairman Rangel’s proposal:

While the package includes some tax relief supported by the NAM, including corporate tax rate cuts, we are extremely concerned about the tax increases that will impact manufacturers of all sizes. Based on our initial review, for many manufacturers, the proposed tax increases could well exceed the benefits of the proposed tax relief.�
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Over the next few months the NAM will be taking a closer look at the tax package to fully assess how it would impact our members.  The Chairman has indicated that this is a long-term project and we look forward to working with congressional tax writers to develop a pro-growth, pro-competitiveness tax package that benefits all U.S. manufacturers and their workers.

Now, that’s how you start an important discussion. 

The National Association of Manufacturers just issued a news release with NAM President John Engler’s reactions to President Obama’s proposals to gut deferral on foreign tax earnings. From the release, “NAM calls new taxes on corporate foreign earnings a ‘disastrous proposal’,” the following are direct quotes from Engler:

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.

The rhetoric on this issue fundamentally misrepresents the nature of global taxation and global competition. At a time when our economy is struggling and thousands of jobs are being lost every month, imposing an additional tax on U.S.-based international companies would put them at a massive disadvantage and cost American jobs.

Limiting deferral and further restricting foreign tax credits would simply increase the U.S. corporations’ tax bill based on their overseas operations, making them less competitive against their foreign-based competitors. In turn, the impact would fall hard on U.S. companies, their suppliers and their employees here at home.

Here’s the White House’s summary of what the President is proposing. And headlines:

• New York Times, “Obama Calls for New Curbs on Offshore Tax Havens“
• Los Angeles Times, “Obama takes aim at offshore tax dodges“

Politically clever, perhaps, but divisive and counterproductive.

UPDATE (1:45 p.m.): A news release from the PACE Coalition – Promote America’s Competitive Edge — which includes the NAM and other major business groups, “PACE Coalition Seeks to Preserve a Level Playing Field for U.S. Companies Competing Abroad.”

Mark Steyn notes the column by Steve Forbes urging President-elect Obama to stimulate economic growth by emulating Ireland’s corporate tax rates and adds:

To a certain type of simple-minded populist, the idea of soaking vast faceless corporations is appealing. But in the end a “corporation” cannot pay tax: The Globocorp corporate HQ looming in chrome and steel over the skyline does not have a pocket to dip into. Like all taxes, the actual cash has to be ponied up by flesh-and-blood human beings – the owners, workers and employees of the corporation. The growing gap between US corporate rates and other developed nations is a massive disincentivization for real human beings to start and grow a business here. And for those already here it encourages the kind of short-term thinking that leads to Bailoutistan and American sclerosis.

From WSJ’s Real Time Economics blog, “Don’t Expect Too Many Jobs From Tax Proposals,” an informative piece by Martin Vaughn on the campaigns’ tax positions:

[Business] groups and some economists say the most important change that could promote job creation is a permanent tax rate cut.

“Overall, you need a tax code that encourages investment by U.S. companies, and that’s going to lead to job creation,” said Dorothy Coleman, vice president for tax policy at the National Association of Manufacturers.

Some recent academic studies indicate that the burden of high taxes falls at least as heavily on workers as it does on shareholders.

“It’s increasingly apparent that the benefit of a lower corporate tax rate is higher wages for workers,” said AEI’s Brill.

McCain wants to cut the corporate tax rate to 25% from its current level of 35%. This tax cut may be partially offset with revenue raisers such as withdrawing benefits from the oil and gas industry, but it would not be fully offset, Holtz-Eakin said.

Obama would also consider lowering the corporate tax rate, if it could be paid for by closing existing loopholes. That revenue-neutral corporate tax reform model is unpopular with business groups and is consistent with a recent plan put forward by House Ways and Means Chairman Charles Rangel (D., N.Y.).

Speaking of AEI, the Washington Post today publishes an op-ed by Brill and his AEI colleagues, “The Real Problem with Obama’s Tax Plan.”

If rewards for America’s entrepreneurs and firms are reduced through higher marginal tax rates, their incentives to earn, invest and create jobs will be diminished. Americans will have less incentive to save, and firms will have less incentive to pay dividends. Tax avoidance will become more profitable. A smaller capital stock will mean a less productive economy and lower wages for middle-class and other workers. These disincentive effects also mean that the revenue gain is likely to be smaller than Obama envisions.

Today’s Wall Street Journal includes two letters of merit on the subject of corporation taxation, both responding to an earlier letter by Sen. Byron Dorgan (D-ND), protesting the behavior of the private sector.

We offer the one missive from the NAM’s own Jeff Noah (director of our small- and medium-sized manufacturers department), writing in his personal capacity:

Though Sen. Byron Dorgan insists on separating fact from fiction when it comes to corporate tax rates, neither he nor most policymakers from either major political party acknowledges the most stubborn fact of all: Corporations don’t pay taxes; they pass the cost of taxes, along with all other costs, on to consumers.

Since corporations are nothing more than collections of individuals (workers, executives and investors) who come together by choice in common pursuit of profit; and since those individuals’ profits (wages, salaries, dividends and capital gains) are taxed once already, a truly fact-based analysis might argue for abolishing the politically correct charade of corporate taxation altogether.

Such an abolition would immediately lower consumer prices for goods and services while dramatically boosting investment in American companies on American soil. Lower prices would help working- and middle-class families struggling to make ends meet, and the unprecedented rush of capital into the U.S. from around the globe would drive explosive economic growth, job creation and correspondingly higher tax revenues for federal, state and local governments.

Jeff Noah
Bethesda, Md.