Industry opposes Obama tax on overseas profits

By Eric Kulisch

   A major part of President Obama’s economic blueprint for sustainable growth focuses on ways to promote U.S. manufacturing and create more jobs.
   One of the ways he wants to do that is through the tax code, lowering rates for companies that operate in the United States and closing loopholes for companies that shift production overseas.
   More specifically, the White House calls for eliminating the deduction for outsourcing and instead offering a credit to cover moving expenses for companies that close production overseas and open plants at home. It also would make companies pay a minimum tax on their overseas profits so they won’t seek out other countries with low tax rates.
   The president also proposes a new tax credit for companies that seek to finance new factories, equipment or facilities in communities hardest hit by a company choosing to relocate or a military base shutting down.
   Business groups aren’t enamored by the ideas, which would result in about $148 billion in new international taxes.
   The U.S. Council for International Business said it supports the administration’s overall approach to lower rates for businesses and create a more efficient corporate tax system, but expressed disappointment about the proposals related to international business.
   “The international provisions fail to recognize that U.S. business competes for customers in the global marketplace. While most countries have adopted territorial systems seeking to facilitate the competitiveness of their multinationals by taxing income only where it is earned, the U.S. is going in the opposite direction. By proposing a minimum tax on foreign earnings, a tax on so-called ‘excess profits’ and the disallowance of interest expense, the administration proposes a step backwards,” USCIB President Peter M. Robinson, said in a statement.
   “A minimum tax on foreign earnings will simply make American firms less competitive than foreign-based multi-national enterprises. Further, the likely response in the marketplace is to make the U.S. a less favored jurisdiction for establishing the headquarters of a multi-national business. Who would choose to set up their business in the U.S. knowing that global expansion would result in a minimum tax? Companies currently headquartered here may not have many options, but anyone advising a new entity would certainly suggest establishing foreign control from the outset. These tax policies could have a role in the acquisition of American companies by foreign competitors. When companies are successful in global markets, it means new jobs in their home countries to support those global business opportunities. Discouraging U.S. headquarters will result in fewer American jobs,” Robinson said.  
   The U.S. Chamber of Commerce said the White House should have adopted a territorial tax system “that would put an end to the double taxation of profits earned by U.S. companies overseas. America is the only major country that disadvantages its own firms competing globally.”
   In written testimony about the tax proposals in the administration’s fiscal year 2013 budget, the chamber told the House Ways and Means Committee last month that President Obama’s own Export Council and the Deficit Commission recommend that a territorial tax system in the United States should broadly follow the practice of major trade partners
  “The chamber believes any changes to international tax policy should make American companies more competitive, drive job creation, and stimulate overall economic growth,” it said.
   The National Association of Manufacturers also favors moving away from a worldwide tax system to a “territorial” or exemption system. It’s tax policy also seeks to ensure that overseas profits are not taxed until they are brought back to the United States.