The Daily Caller highlights the portion of the transcript from Monday’s meeting of the President’s Economic Recovery Advisory Board during which panelists discussed taxes, uncertainty and the economy. The remarks by Laura D’Andrea Tyson, chairman of the Council of Economic Advisors under President Clinton, were … puzzling. Not quite right. Off base. Out of touch.

From “Conservative economist urges Obama to extend all tax cuts”

MS. TYSON: Well, I didn’t come prepared to talk to the tax issue. I will say a couple of things, having listened to the discussion.

One is I’m struck by the fact that a lot of the companies we talk about having lots of cash, where it sits — if you read the reports, say, of the Business Council, Business Roundtable, National Association of Manufacturers, if you listen to the CEOs of big companies sitting here, this tax issue doesn’t come up.

Our emphasis.

We can assure Ms. Tyson that NAM member companies are extremely concerned about the expiration of the 2001 and 2003 tax rates. From the NAM’s ManuFact, “Taxing Smaller Manufacturers: Pending Tax Increases Will Hit Small and Medium-Sized Manufacturers: “In a March 2010 survey of small and medium-sized manufacturing firms, 86 percent said they were concerned about the expiring tax rates – of those, 62 percent said they were very concerned.”

Tyson goes on to talk about the larger corporations:

If they’re going to talk about taxes, the business community that I know with the large amounts of cash that could employ large numbers of people are more likely to talk about corporate tax reform. They’re more likely to talk about repatriation. They’re more likely to talk about deferral. They’re not talking about their particular income tax bracket. So I just am not convinced.

Yes, the larger companies are more likely to talk about repatriation and deferral than the individual income tax rates. After all, unlike the smaller companies, they do not file under the individual rates.

But the Obama Administration and Congress are targeting these larger companies — EMPLOYERS of millions of Americans — for higher taxes in these areas, as well. The NAM’s letter of Sept. 24 to the U.S. Senate about the international tax increases in the “outsourcing bill” provides details.

To suggest that manufacturers are not concerned about the expiration of the 2001 and 2003 tax rates is, to put it in the vernacular, wrong.

The Washington Post continues its skein of well-reasoned editorials on the economy and federal legislation today with “Outsourcing Under Attack: ‘Keeping jobs in America’: As campaign slogan, great. As tax law, not so much.”

The editorial addresses the Senate’s bipartisan vote to block S. 3816, the Creating American Jobs and Ending Offshoring Act, which would permanently raise taxes on U.S. businesses with foreign operations to fund  temporary tax relief for some other businesses. The Post notes the obvious politics behind the bill while rebutting it on the substance:

The Senate proposal would have been extremely difficult to administer: How, exactly, would the government connect particular expenses to the export of particular jobs, or identify the revenue attributable to particular goods or services transferred? But more fundamentally, the Senate proposal, like the White House plan before it, reflects basic misconceptions about the conduct of multinational companies. In brief, there are many cases in which opening, or expanding, a subsidiary overseas can create or sustain employment in the United States. Sometimes U.S. firms make parts abroad that they ship to the United States for assembly. If Congress starts taxing the income they make by doing so, some companies will respond by shipping the assembly overseas as well. A 2008 study by economists Mihir Desai, C. Fritz Foley, and James Hines of Harvard Business School found that domestic investment by U.S. firms grows by 2.6 percent for each 10 percent increment in the companies’ investment overseas.

In other words, counterintuitive as it may seem, international capital flows are not a zero-sum game for American workers. To set tax policy as if the contrary were true is to invite retaliatory measures by other countries on behalf of their “national champions.” There is a strong case to be made for reforming U.S. corporate taxation, which may disadvantage U.S.-based businesses as compared with those operating in Europe and elsewhere abroad. The code is full of irrational loopholes and perverse incentives. But dealing with them piecemeal — much less dealing with them on the basis of politically popular misconceptions — will only make matters worse.

That’s an important point: The U.S. tax system is flawed, of course, starting with having the second highest corporate tax rate among developed countries. If Congress wants to seriously address the U.S. tax system, its incentives perverse and otherwise, please!

As the “Key Vote” letter from the National Association of Manufacturers opposing S. 3816 observed: “[NAM] supports a national tax climate that does not place U.S. manufacturers at a competitive disadvantage in the global marketplace.”

From Jay Timmons, executive vice president of the National Association of Manufacturers:

Manufacturers and their workers are disappointed that the Administration’s budget proposal for fiscal 2011 discourages job creation by adding new costs to business. The President called his budget a “blueprint for job creation and economic growth” but it puts costly burdens on America’s job creators. Our nation’s unemployment rate continues to hover at 10percent with many of the industrial sectors of the economy still struggling to recover from the recession.

The President’s budget calls for almost $500-billion in new taxes on businesses over the next 10 years including:

• A tax rate hike of almost five percentage points for many small and medium size businesses;
• $59 billion in new taxes on established businesses that hold inventory;
• A $122 billion tax increase for U.S. companies with worldwide operations;
• A $19 billion reinstated “Superfund tax” on most corporations; and
• An additional $39 billion in new taxes on energy companies.

 More on the economy-damaging tax increases tomorrow.

With the newly populist President Obama expected to address budget deficits at Wednesday’s State of the Union address, Jane Sasseen of BusinessWeek previews the White House’s planned push for tax increases on U.S. employers. From “Taxes: Ready to Rumble“:

The budget deficit, bloated by the costs of President Barack Obama’s stimulus plan and the sharp fall in tax receipts due to the recession, will hit $1.4 trillion in fiscal 2010, for the second year running—more than twice what it was in 2008. If Obama sticks to his pledge to keep the Bush tax cuts for families earning less than $250,000 a year, the move will add a projected $230 billion a year on average to the deficit over the next decade.

That leaves only one viable source for the hundreds of billions in extra tax revenue needed to sponge up all that red ink. With his Jan. 14 proposal to raise up to $117 billion through a levy on the nation’s largest financial institutions, Obama took a stab at increasing corporate taxes. It won’t be the last. “The pressure to raise more from the business sector will only intensify,” says Anne N. Mathias, a tax policy analyst for the Washington Research Group. Few expect the Democrats to push hard for a big corporate tax hike before midterm elections, and the prospects for boosting any taxes just got a lot harder with the Democrats’ stunning loss in Massachusetts. Yet Mathias and others believe the risks of a squeeze on companies will rise sharply by yearend, when Congress and the President will have to extend the Bush tax cuts for the middle class before they expire.

Sasseen provides more detail on the kind of taxes the White House is expected to pursue, provisions that will be included President’s proposed FY2011 budget released in February.

The problem, however: Tax increases are incompatible with U.S. global competitiveness.

See The Tax Foundation’s Fiscal Fact from August 2009, “U.S. Lags while Competitors Accelerate Corporate Income Tax Reform.”

New data from the Organization for Economic Cooperation and Development (OECD) shows that the U.S. corporate tax rate has fallen even further out of step with the rest of the industrialized world as countries such as Canada, the Czech Republic, Korea, and Sweden have cut their corporate rates in 2009, lowering the average statutory corporate tax rate of all OECD nations to 26.5 percent.

With a combined federal and state corporate tax rate of 39.1 percent, the U.S. continues to impose the second-highest overall corporate rate among industrialized countries.

We might as well make it Wall Street Journal morning here at Shopfloor in light of the good stuff on the opinion page. Here’s the editorial on the Obama Administration decision to shelve the plan to raise $200 billion in taxes on U.S. businesses with overseas operations by ending deferral. From “In Praise of Lobbyists“:

The idea that raising corporate taxes would promote job creation never made sense, and the mere threat of higher taxes is one factor depressing business investment and slowing any recovery. So it’s good news that the Administration seems to have set this job-killer aside, at least for now. Administration sources are saying they may return to this bad idea as part of their tax increase, er, tax reform proposals in a year or two.

The editorial follows a thorough examination of the issue by the Journal Tuesday, “Business Fends Off Tax Hit.” See also our post, “Wisely, White House Shelves ‘Tax Deferral’ Plan…For Now”

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.

The National Association of Manufacturers is active in a broad-based coalition, PACE, which stands for Promote America’s Competitive Edge, which includes major U.S. businesses with international operations. Among the revenue provisions being considered to pay for an expansion of health care coverage are dramatically higher taxes on those corporations for earnings made overseas. The tax hikes would be extremely damaging to U.S. competitiveness.

A PACE letter signed by 280 companies and associations has just been sent to members of Congress, outlining the deletrious impact. Excerpt:

American companies with worldwide operations directly employ 22 million American workers and support an additional 41 million U.S. jobs through their supply chain and through the purchases of goods and services by their employees. A steep corporate tax hike on worldwide American companies, especially during a severe recession, will hinder our ability to protect and create American jobs and will slow our nation’s economic recovery.

The current U.S. international tax system has evolved over decades in a manner that attempts to keep worldwide American companies on a nearly level playing field with competitors in other nations. Meanwhile, other leading economies are moving to make their corporate tax systems more competitive. As a result, the United States lags behind and is increasingly isolated from the rest of the world.

The U.S. business community supports closing tax loopholes and prosecuting those who cheat on their taxes. However, the current international tax rules including deferral, check the box and foreign tax credits are fundamental tax provisions, and are integral parts of the US tax system – not “tax loopholes.” It is inaccurate and misleading to represent them as such.

That’s right. And politicians who decry “tax incentives for shipping American jobs overseas” are engaged in cynical populism.

The letter is a very clear introduction to the dynamics of international taxation and U.S. competitiveness. Highly recommended.

And here’s the news release.

Today’s Detroit News include a good package of coverage on the manufacturing sector’s views of the Obama Administration, focusing on the experiences and attitudes of the beleaguered manufacturers in Michigan. Quite balanced, “Obama faces tough test with manufacturers“:

Washington — Manufacturers in Michigan and throughout the United States are still not sure what an Obama presidency means for them and say that several tests of what was expected to be a rocky relationship lie ahead.

Four months into President Barack Obama’s first term and with a Democratic-controlled Congress, they’re watching for signs on how he will handle the nation’s expiring blueprint for highway spending, three pending trade bills, climate change and health care reform.

So far, manufacturers have given Obama high grades for his handling of the economic crisis, but they’re concerned about the president’s support for the Employee Free Choice Act — better known as “card check” — which makes it easier for workers to form unions. Also of concern are the White House’s proposed changes to tax rules on foreign earnings of U.S. companies and a carbon “cap and trade” policy to combat climate change.

Part of the story grows out of a reporter’s roundtable the NAM held when board members were in town for the Manufacturing Summit, May 6 and 7. For example:

At a National Association of Manufacturers roundtable discussion this month, some of Obama’s tax and labor policies were referred to as “scary,” “anti-business” and “anti-jobs.”

But one summit attendee — Michael Campbell, president and CEO of Arch Chemicals and the association’s chairman — spoke admiringly of Obama’s economic team and signals that he intends to expand global trade.

“I don’t see a lot of friction between us and the administration,” Campbell said. “There’s probably genuine apprehension about some of the policy proposals. But in terms of what specifically is being worked now, I think there’s more opportunity for us to work with them than against them.”

The “scary” and “anti-business” policies people were thinking tended to be things like the Employee Free Choice Act and the proposed tax increases (deferral and S Corporations) that would make manufacturing in the United States less globally competitive.

Washington reporter Deb Price wrote the stories.

A clear, two-minute video explaining how the Obama Administration’s plans to rework corporate tax deferral rules will make U.S. businesses less competitive overseas and hurt jobs creation here in the United States.

From the Tax Foundation.

From Dow Jones (subscription), “Union Calls For Foreign Profits Tax To Fund Health Reform“:

WASHINGTON (Dow Jones)–U.S. labor unions are joining a push by the Obama administration to raise taxes on the foreign profits of U.S. multinationals. An AFL-CIO official will urge a Senate committee Tuesday to use the proceeds from Obama’s tax changes – as much as $210 billion – to help fund an overhaul of the U.S. health-care system.

This jobs-killing proposal will be made during a Senate Finance Committee roundtable discussion, “Financing Comprehensive Health Care Reform.” Thirteen witnesses scheduled for the roundness, so the odds are someone will have a better idea than this one.

UPDATE: In related news, “Deficits soar even with rosy Obama budget assumptions”