WSJ: Business tax on foreign earnings shelved

posted at 11:36 am on October 13, 2009 by Ed Morrissey

Barack Obama has quietly shelved a plan to tax foreign earnings of American businesses, which he had hoped would raise over $200 billion in new revenue but which corporations argued would make them less competitive abroad.  The Wall Street Journal reports that business leaders feel relief, but only for the moment.  If the White House gets in a revenue jam, they know this will be right back on the table, and with the spending planned by Obama and Congress, that could come very soon indeed:

The Obama administration has shelved a plan to raise more than $200 billion in new taxes on multinational companies following a blitz of complaints from businesses.

A contingent of Silicon Valley chief executives, for example, traveled to Washington in late September to speak out against the proposal to change how the federal government taxes overseas profits. They came away from meetings with key congressmen relieved.

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.”

Obama wanted to apply the American corporate tax to earnings abroad, a move that few if any other Western nations have made.  It would have placed a 35% tax on profits from overseas subsidiaries and sales, on top of the taxes they pay in other countries on revenues realized in each.  The Obama policy would force US companies to increase prices both here and abroad to make up the lost revenue.  That would have made them far less competitive against foreign companies that only pay tax in the countries where they make the revenue, the way the US is structured currently, rather than getting double-taxed by both their home country and the country of operation.

Thanks to the raging debate on health care, this has not received much public attention, but corporate leaders have kept up pressure to end the plan.  They especially recoiled at the tone taken by Obama, which portrayed the normal global operation of business and taxation as some sort of fraud perpetrated by American businesses.  In response, some multinationals have looked at relocating their headquarters abroad to avoid the double taxation, taking jobs with them, while others have tried warning the White House of the political consequences of demonization.

Among the latter, the CEO of a company that employed me for years deserves a special mention, not to mention a Captain Louis Renault Award (via Instapundit):

Honeywell Chief Executive David Cote, a Republican who supported Mr. Obama in the election, says he was taken aback by the president’s rhetoric on the tax issue. “You can’t love jobs and hate those who create them,” he says.

Cote is shocked,shocked! that the class warrior he supported has turned his sights on Wall Street and corporate America.  I wish I could say I’m surprised at this, but having spent a few years working in Honeywell’s management …. not really.  Did Cote bother to listen to Obama during the campaign at all before supporting him?

For now, the double-taxation plan has been mothballed, but don’t be surprised if it comes up again in the future — and perhaps the near future.  Will this be enough to convince business leaders not to fall for the next Hopeandchange charlatan that comes down the pike?  I’d say … doubtful.


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Obama hears ‘$200 billions new revenue’ and ‘tax on big business’ then his eyes glaze over the detail.

Sir Napsalot on October 13, 2009 at 11:40 AM

Honeywell Chief Executive David Cote, a Republican who supported Mr. Obama in the election, says he was taken aback by the president’s rhetoric on the tax issue. “You can’t love jobs and hate those who create them,” he says.

But Hussein sure speaks purdy!

BigMike252 on October 13, 2009 at 11:41 AM

wurst precedent evah!

moonbatkiller on October 13, 2009 at 11:41 AM

Yeah because he loves GOOGLE and they love him, the rest of us are so frakked

I was hoping if silicon valley went down with us they would work for restoring capitalism in 2010, but nooooooo

ginaswo on October 13, 2009 at 11:42 AM

If the White House gets in a revenue jam,

….

They’re not in a revenue jam now???

artist on October 13, 2009 at 11:44 AM

and Rahm is apparently personally keeping the US Dollar low for these mnc’s great but once they lose control of the rope they are holding hyperinflation baby BAM!

I think its bad news, b/c this was a CLEAR call to MNCs to get with the program and stop endorsing Obamanomics

now he has them back in line, until Volcker gets to play with the dirty money

Bruce Bartlett was just on CNBC making Kudlows head explode, by supporting a VAT

ginaswo on October 13, 2009 at 11:45 AM

There will be so much to fix in 2013.

faraway on October 13, 2009 at 11:45 AM

http://www.nytimes.com/2009/05/05/business/05tax.html

The top corporate tax rate is 35 percent, but the Treasury Department estimated that in 2004, the most recent year for which data is available, American multinationals paid $16 billion in taxes on $700 billion in foreign income — an effective rate of 2.3 percent.

How is the status quo justifiable?

AJB on October 13, 2009 at 11:46 AM

I’m shocked that Barry shelved this tax, even temporarily. It’s just a matter of time before he revisits it. After all, from Barry’s perspective, business profits=fraud. Sick.

anXdem on October 13, 2009 at 11:48 AM

Why didn’t they just exclude tech companies like they always try to exclude the unions. That’s what I would have expected them to do. Fascists.

Joe Caps on October 13, 2009 at 11:48 AM

How is the status quo justifiable?

AJB on October 13, 2009 at 11:46 AM

You know they pay tax in the country where the earnings occur, right?

faraway on October 13, 2009 at 11:49 AM

There will be so much to fix in 2013.

faraway on October 13, 2009 at 11:45 AM

Yet, no one to fix it.

artist on October 13, 2009 at 11:51 AM

if this idiot just did a George Costanza (i.e. “just do the opposite”) we would all be better off and he would actually stand a chance to win something based on merit.

Jed_Eckert on October 13, 2009 at 11:53 AM

Thanks to the raging debate on health care, this has not received much public attention,

I shudder to think WHAT ELSE is being implemented under the radar, obscured by the raging debates, I.E. Obamacare, racism, etc. being fomented by our liberal fascist overlords.

Fishoutofwater on October 13, 2009 at 11:53 AM

How is the status quo justifiable?

AJB on October 13, 2009 at 11:46 AM

Lower the corporate tax rate and you’ll see more tax income.

lorien1973 on October 13, 2009 at 11:53 AM

O how it must pain Chief Mbama not to tax us!

Akzed on October 13, 2009 at 11:58 AM

How many new taxes has Obama raised? How many new regulations has he put in place?

Alternatively, how much of our tax dollars has he given away to the rich? With that kind of track record, I wouldn’t count on the rich getting hosed. Actions speak louder than words.

The Calibur on October 13, 2009 at 12:00 PM

If the White House gets in a revenue jam…

IF??? Are you f’in kidding me?

0bama has bankrupted America, there is no “if” involved.

Rebar on October 13, 2009 at 12:02 PM

Liberal Lexicon:

Profit = Stealing from Democratic Party base constituents

BobMbx on October 13, 2009 at 12:02 PM

Hey Ed, I used to work for Honeywell back in my corporate life 20 years ago. My boss and director in the Phoenix location were also idiots. I dunno if they voted for Obama since I never maintained contact there after I fired them and bailed out of corporate america for 15 years, 15 terrific years. I never expected to be back in corporate america captaining a start up company. Who knew!!

Why would the Honeywell CEO support Obama, an appeasing pansy, when Honeywell is a defense contractor? IDIOT!!!!

karenhasfreedom on October 13, 2009 at 12:06 PM

For now, the double-taxation plan has been mothballed, but don’t be surprised if it comes up again in the future

What did these business “Titans” agree to give into? Cap and Tax? Health Care? Card Check? What???

Caper29 on October 13, 2009 at 12:06 PM

obama spoke. obama lied. same $#@%, diferent day!

Ghoul aid on October 13, 2009 at 12:07 PM

Hey Mr. Cote…

…you f***ed up… you trusted them.

Chaz706 on October 13, 2009 at 12:11 PM

They’re not in a revenue jam now???

artist on October 13, 2009 at 11:44 AM

You think this would’ve tipped them off on that coming catastrophe eh?

Chaz706 on October 13, 2009 at 12:13 PM

I had to deal with Cote-isms while I worked for TRW. It wasn’t pretty.

I can understand why he was so taken by Obama. Cote’s view on reality was always a bit…skewed.

karl9000 on October 13, 2009 at 12:26 PM

You want a real jobs creation program? End corporate income tax. Watch foreign companies invest here for tax-free skilled labor. Customers pay the tax anyhow, so let’s relieve ourselves of the awful burden of tax code compliance. Most other countries are already headed in this direction. Why can’t we beat them to it?

alflauren on October 13, 2009 at 12:26 PM

Elmer Hussein Gantry

max1 on October 13, 2009 at 12:31 PM

“You can’t love jobs and hate those who create them.”

Er, Dear Leader hearts government jobs.

moonsbreath on October 13, 2009 at 12:33 PM

Speaking of tax matters, two questions.

First, what’s Obama doing about the expiring Bush income tax cuts? Don’t the expire at the end of 2009? As I recall, those don’t affect only top income earners. I think rates were lowered for the middle class tax brackets too.

Second, what’s Obama doing about the federal estate tax? Under the revisions from about a decade or so ago, the estate tax (not the gift tax) expires in 2010–for one year. Then, in 2011, the federal estate tax returns under the law that existed at the date of enactment. In other words, as I recall, an exemption of $1 million (currently, $3.5 million) and highest rate of 55% (currently, 45%).

I’m convinced that his tax policy team, such as it is, is asleep at the switch–unless there are a big group of liberal donors who have elderly parents they’d like to pull the plug on in 2010.

BuckeyeSam on October 13, 2009 at 12:44 PM

Of course if any businesses move out of the country because of these taxes, Dark-Star and others will declare that the companies are traitors for stealing jobs from US workers.

MarkTheGreat on October 13, 2009 at 12:54 PM

How is the status quo justifiable?

AJB on October 13, 2009 at 11:46 AM

1) The money was never brought into the US.
2) Income taxes were already paid on that money in the country in which it was earned.

Nothing unacceptable about it.

MarkTheGreat on October 13, 2009 at 12:57 PM

Soros said no, so Obama says no…and the problem is???

right2bright on October 13, 2009 at 1:14 PM

Just another example of 0′s lack of knowledge. With his spur of the moment decisions on what should be done to businesses, no one is going to make plans for basing their future business arrangements on what he says today. There is always doubt about what he will decide tomorrow.

Oleta on October 13, 2009 at 3:17 PM