ECONOMIC SCENE: If Obama needs revenue, why not tax corporations' international profits?

President Obama should channel Monty Python by taxing corporate profits held abroad.

|
Newscom
John Cleese, a famous member of the British comedy troupe Monty Python, recites a poem during an event at the Gallo Center for the Arts in October. Should Barack Obama channel a line from a Python film, imposing a tax on corporate profits held abroad?

The British comedy team, Monty Python’s Flying Circus, had an answer for governments saddled with huge budget deficits. In a skit, one comedian proposed: “Tax all foreigners living abroad.”

If only it were that simple.

As any member of Congress knows, raising Americans’ taxes is politically risky. That explains why so many avoid it. But Congress is desperate this time to find new revenue to pay for favorite projects – such as an extension of unemployment insurance, job credits, and $250 for seniors – without further bloating the deficit, says Martin Sullivan, an expert at Tax Analysts. So President Obama suggested one “Python-type” proposal in his budget for fiscal 2010: Tax the profits that American multinational corporations hold abroad.

This money – $187 billion in 2008 – is not taxed until it is repatriated home. In a May speech, Mr. Obama warned corporations against “shirking” their responsibility to pay more taxes.

The idea has so far gone nowhere. The Wall Street Journal reported in October that the administration, under pressure from business leaders, had shelved the plan. Yet Mr. Sullivan suspects the Obama plan may just be delayed, waiting until healthcare reform and perhaps climate-change legislation passes Congress.

Congress may seek other ways to boost revenues, Sullivan notes: a crackdown on tax havens, an excise tax on Cadillac healthcare plans, taxing health-insurance companies. But the potential revenues from raising corporate taxes are tempting: a total $150 billion to $200 billion over 10 years.

The idea could be resurrected by Obama’s Economic Recovery Advisory Board when it reports in December. Or the president could revive his tax proposals in his 2011 budget, due in February.

Any such proposals will be challenged. Some companies argue they are already overtaxed with a statutory rate of 35 percent of profits, the second highest among industrial nations. In fact, because of a plethora of loopholes, including tax deferral of overseas profits, the actual effective corporate rate has run about 13 percent, three percentage points lower than average, according to the Organization for Economic Cooperation and Development in Paris.

Much of the profits held abroad were earned in the United States but shifted to tax havens and other nations by various accounting or other legal measures, says Robert McIntyre, of Citizens for Tax Justice in Washington. “Our current tax system allows many of our biggest and most profitable corporations to pay little or no tax,” he said in an e-mail to Obama’s advisory board. “It taxes investment income at less than half the rate workers pay.”

The tax system has also encouraged US companies to outsource activities overseas for the past 20 years, says Charles Cray, director of the liberal Center for Corporate Policy in Washington. “It’s an incentive to create jobs offshore.”

Another argument put forward by corporate lobbyists and the Washington think tanks they support is that corporations aren’t actually people. So customers really pay higher company taxes.

But Mr. McIntyre figures much of any corporate tax burden actually falls on shareholders and maybe even corporate executive benefits rather than on all Americans. High-income Americans might not like higher corporate taxation. But as the group whose income grew fastest this decade, their objections might be ignored.

After all, the art of taxation, as Louis XIV’s finance minister, Jean-Baptiste Colbert, famously said, “consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest amount of hissing.”

Certainly Monty Python would have chuckled.

______

— Let us know what you think of this proposed tax Twitter.

You've read  of  free articles. Subscribe to continue.
QR Code to ECONOMIC SCENE: If Obama needs revenue, why not tax corporations' international profits?
Read this article in
https://www.csmonitor.com/Business/2009/1118/economic-scene-if-obama-needs-revenue-why-not-tax-corporations-international-profits
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe