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.