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.”

The National Association of Manufacturers today sent a letter to U.S. Senators expressing the NAM’s opposition to S. 3816, the Creating Jobs and Ending Offshoring Act. Text:

The National Association of Manufacturers (NAM)—the nation’s largest industrial trade association—opposes the Creating American Jobs and Ending Offshoring Act (S. 3816). Manufacturers are concerned that the bill’s proposed tax increases would impose new costs on American manufacturers, making them less competitive in the global marketplace and jeopardizing U.S. job creation.

American companies with overseas operations support and create U.S. jobs. An estimated 22 million people in the United States—including more than 53 percent of all manufacturing workers—are employed by companies with operations abroad. With more than 95 percent of the world’s customers outside the United States, American companies establish operations abroad in order to penetrate foreign markets and add new customers.

Manufacturers share your concern about the critical importance of job creation. The NAM’s Manufacturing Strategy for Jobs and a Competitive America urges lawmakers to support policies that help ensure that the United States will be the best country in the world to headquarter a company, to innovate and perform global R&D and to manufacture, both for the American market and as an export platform for the world. To this end, NAM supports a national tax climate that does not place U.S. manufacturers at a competitive disadvantage in the global marketplace. Unfortunately, the tax increases in S. 3816 do just the opposite.
(continue reading…)

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.

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.

And now?

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”

In his remarks this morning to the National Association of Manufacturers, the NAM’s Public Affairs Steering Committee, House Majority Leader Steny Hoyer was at his most forceful when talking about the deficit. Here’s the passage:

Part of the fear and anger that we see at these town meetings is a fear that their country is in a fiscal situation which they’re going to pay for and is unsustainable. They are right. (Pounds lectern). I am one of those Democrats who believes very strongly we’ve got to get a handle on this deficit, and it will not be for free. There is no easy magic way to get there. You need to pay for what you buy. That’s what the president is saying on health care, we need to pay for what we buy. We’ll have to figure that out. But I agree with the president, I’m not going to be for a bill that adds to the deficit. We’re going to have to pay for that. So I’m going to ask you to focus on that.

The majority leader spoke in support of tax reform, said it had to be bipartisan (a la 1986), but did not hold out much hope for action soon along those lines. It was interesting that he implicitly acknowledged the merit of the arguments of companies that are protesting the Administration’s proposed elimination of deferral and other tax increases on overseas income.

But I do understand that if we and when we adopt tax reform, we need to do so in a way that helps you grow your businesses, helps you grow jobs, both here…and profit. Not only here, because we’re in an international community…

I was with the president of Oracle out in California the other day, talking about how much of their business is overseas, but much of their growth obviously is here in terms of the necessary business but their employees are here. So we’re advantaged by where ever they pay the money. We need to facilitate that, not impede it.

Notwithstanding that, offshore income continues to be a challenge for us, and we need to come up with a good solution to that issue.

Here’s the .mp3 of the relevant passages, and the transcribed remarks.

Millionaire taxes, income tax surcharges, temporary tax increases, etc. What behavior do they spur?

Tax Foundation, “Maryland Wonders: Where’d the Millionaires Go?”

The evidence on both sides has primarily been anecdotal, focusing on California and New Jersey, which have had the taxes the longest. Now anecdotal evidence is coming in from Maryland, which imposed its new tax brackets in 2008. On May 13, Maryland Comptroller Peter Franchot (D) wrote in a letter that the number of tax returns reporting income over $1 million has dropped by a third. More to the point, revenue from those earners has dropped by $100 million.

Then again, no reason to be an elitist about it. From Marta Mossburg, Washington Examiner, “It’s not just millionaires fleeing Maryland taxes.”

Maryland’s “millionaires’ tax” flopped. It was doomed from the start.

Anyone taking Economics 101 could have predicted that those best able to avoid Maryland’s new 6.25 percent marginal tax rate on income over $1 million would. They are the ones best able to choose where to live and to pay accountants and lawyers to lower their tax burden.

Market losses no doubt contributed to one-third fewer people filing taxes in that income bracket in Maryland by April 15, as supporters of the legislation say. So did those filing extensions. But they and the Republicans yelling “I told you so” miss a bigger issue: Everyone is leaving Maryland, not just the rich.

NAM President John Engler often makes the point that in years past — think the ’90s — states were in a struggle with one another over recruiting businesses and employers, frequently citing their competitive tax structures (or incentives) to woo major companies. Now, that recruiting struggle is international, with nations going after employers with the same arguments about competitive tax structures.

NAM news release, May 4, “NAM Calls New Taxes on Corporate Foreign Earnings a ‘Disastrous Proposal’“

From Reuters, “Obama seeks tax changes for U.S. firms overseas”:

WASHINGTON (Reuters) – President Barack Obama on Monday will propose changing provisions in the tax code that he says encourage U.S. companies to move jobs overseas, as part of a broader package aimed at saving $210 billion over 10 years.

U.S. officials said that in an announcement planned for 11:05 a.m. EDT, Obama will seek to follow through on a campaign promise to change the tax treatment of American firms with overseas operations.

In March, the National Association of Manufacturers and 200 businesses and trade associations signed a letter to Congress opposing provisions in the President’s budget that he appears ready to reaffirm today. Here’s the heart of the letter:

Ninety-five percent of the world’s consumers live outside of the United States. American companies seeking to serve these consumers rely on growth in these markets to restart economic growth and create jobs for Americans. In fact, 22 million Americans work for U.S. multinationals while millions of other Americans are employed by the thousands of small and medium-sized companies that supply and service U.S. multinationals.

American companies require only a level playing field in international tax policy. Unfortunately, the Administration’s proposal to repeal “deferral” would impose a unilateral tax on the foreign earnings of American companies, upsetting the competitive balance between U.S. and foreign companies. This will result in a loss of jobs for Americans and serious negative impacts on the U.S. economy.

The campaign rhetoric about “shipping our jobs overseas?” It’s populist sloganeering that ignores the realities of the global marketplace.

Once again, we’re seeing the political two-step: Praise jobs, but punish the jobs creators.

UPDATE: (9:24 a.m.): The Obama Administration distributed talking points this morning. Here’s the sheet.