Tax Rascal

Obama’s New Plan: Bring Our Money Home?

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Obama’s New Plan: Bring Our Money Home?

Barack Obama has an exciting new plan to raise revenue: make companies pay taxes on the money they earn. Okay, so it’s not new, and it’s not that exciting. But it is a little more complicated than that.

Basically, the current plan is designed to tax income earned overseas, whether or not it’s returned to the US. Right now, if Apple sells an iPod in Italy, they pay Italian taxes on their Italian income. As long as they keep the money in Italy, they don’t have to pay US income taxes on it.

  • The case for the plan is that it closes a giant loophole in the current tax scheme. And it’s not as if companies will just stop selling overseas if they have to pay regular taxes on the money. If a sale is only worth making because of special tax advantages, it’s probably a good thing to get rid of the tax issue.
  • The case against it is that this is an extra tax on our best companies, and that it unfairly penalizes American workers. Consider someone who took a risk and joined Apple ten years ago, when their survival was in doubt. Now, they’re part of a company that is worth over $100 billion, mostly due to products that didn’t exist ten years ago. These products were mostly designed in the US, but are often sold overseas — so the risk-taking engineer is penalized for being part of a company that sells American-designed goods worldwide. And in a crowning irony, that tax revenue partially pays for bailing out American car companies, who can’t make something people outside the US want to own.

It’s easy to score political points by condemning companies for paying less in taxes than they could. But of all the unfair tax loopholes to close, this is one of the worst. Closing it punishes companies that can successfully compete overseas, and encourages American companies to cater to local, rather than global, taste. But when 25% of technology companies are founded by immigrants, and this bill hits technology companies especially hard, we have to wonder: if this law passes, will people still start companies in the US? Or will they stay home and sell to us instead?

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3 Responses to “Obama’s New Plan: Bring Our Money Home?”

  1. Lubna Says:

    I agree with your views. The deferral reform penalises genuine global operations of US companies. In fact, my next column will be devoted to this issue.
    It may perhaps have been more prudent to enable US companies to repatriate dividends tax free to the US. UK, in its recent budget has proposed that foreign dividends repatriated to the UK will not be taxed in UK. This will participation exemption rules will make UK a favourable destination for global headquarters. In Japan also, foreign dividends that are repatriated are not taxed in the hands of the Japanese parent.

  2. Taxrascal Says:

    It’s obviously a complicated issue. I think there’s a chance that some US companies should owe some kind of tax — just because they’re sort of protected by US law, and by America’s reputation for fairly non-corrupt dealings (would you rather deal with an oil company run out of Kansas or Kazakhstan?).

    Of course, that theory would require the US to reimburse companies if our reputation hurt them — for example, we’d end up compensating our investment banks for the reputational damage of being in the US. (Which could be a nice way to ease into another bailout).

  3. cody b Says:

    These companies pay a ton in taxes already Taxing them based on money earned out side the us is nuts what it will do is push these companies to move there HQ and good American jobs outside the US to Countries with a better tax laws not a smart move for a country that is already bleeding jobs off to other nations. Sadly this is a Capitalist idea and capitalism is Dead in America as far as the government is concerned.

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