The Houston Chronicle
March 1, 2009 Sunday
3 STAR EDITION
Critics question president's pursuit of overseas tax breaks Some wonder if Obama's plan will affect jobs
By DAN FREEDMAN, WASHINGTON BUREAU
BUSINESS; Pg. 5
WASHINGTON - President Barack Obama's pledge to end tax breaks for multinational corporations "that ship our jobs overseas" is welcome news for organized labor, but tax experts question whether it will help U.S. workers.
"It's not clear that changing the tax code will help keep jobs in U.S.," said Rosanne Altshuler, co-director of the nonpartisan Washington-based Tax Policy Center. "And it's not clear that by investing abroad, U.S. multinationals are hurting the U.S. economy."
But to corporate critics, it's a matter of fairness - not macroeconomics.
"Maybe we can't fight forces of globalization," said Robert McIntyre, director of Citizens for Tax Justice, an organization that has received support from organized labor. "But we don't have to pay these guys to do it."
At issue is an arcane provision of the tax code known as the deferral clause. It allows businesses to avoid paying the 35 percent U.S. corporate tax rate on overseas earnings.
Companies can defer tax on overseas income as long as those dollars remain abroad. If they decide to bring those earnings home, they pay the 35 percent rate minus whatever they paid in taxes to foreign governments. For the most part, experts say, corporate money earned overseas stays overseas.
The pool of U.S. multinationals' "unrepatriated foreign earnings" at the end of 2002 was $639 billion, the Congressional Research Service said in a report.
Details of changes to the deferral clause remain vague. The president's budget, released Thursday, states that "international enforcement" and "reform (of) deferral and other tax reform policies" will add $210 billion in tax revenues to the U.S. treasury over the next 10 years.
Business views changes on taxation of foreign earnings as hurting American competitiveness overseas.
"Companies don't sit here and talk about how the tax system makes it more advantageous to move jobs overseas," said John Castellani, president of the Business Roundtable, an organization of U.S. corporations. "It doesn't work that way."
U.S. corporate tax rates are among the world's highest, Castellani said, and ending tax breaks for overseas earnings would make them even higher.
"One in five jobs in the U.S. is tied to international trade," he said. "What we don't want to do is to create a tax code that makes it impossible to compete outside the U.S."
A number of corporate leaders have proved adroit at avoiding taxes by parking income ostensibly earned in the U.S. in offshore accounts.
Instead of saving American jobs, drastic changes in the tax laws might lead some corporations to lift anchor from U.S. shores altogether, said Gary Hufbauer, a former Treasury Department official who is now a senior fellow at the Peterson Institute of International Economics.