U.S. corporate tax rate pushes jobs overseas

by Ashley Muchow Our current administration has another plan to bring jobs back the U.S.  Though the end goal is merited, the plan of action is grounded in poor economic reasoning. President Obama claimed last week that “for years, our tax code has actually given billions of dollars in tax breaks that encourage companies to...

by Ashley Muchow

Our current administration has another plan to bring jobs back the U.S.  Though the end goal is merited, the plan of action is grounded in poor economic reasoning.

President Obama claimed last week that “for years, our tax code has actually given billions of dollars in tax breaks that encourage companies to create jobs and profits in other countries.”

He’s correct.  But Obama’s plan to address this problem is terribly flawed.  Instead of confronting the problem at its core—decreasing the punitively large U.S. corporate tax rate—our current administration suggests we raise the burden on businesses headquartered in the States and doing business abroad.

The issue is how the U.S. taxes American firms yielding profits overseas.  Obama wants to change the current law that taxes companies the difference between the U.S. corporate tax rate and the foreign rate when profits are brought back into the U.S., to a system that applies the full U.S. tax on overseas profits as soon as they are earned.

First things first, let’s look at how burdensome the U.S. corporate tax really is, courtesy of the Tax Foundation.

The WSJ released an excellent article concerning the matter this morning:

Mr. Obama believes that by increasing the U.S. tax on overseas profits, some companies may be less likely to invest abroad in the first place. In some cases that will be true. But the more frequent result will be that U.S. companies lose business to foreign rivals, U.S. firms are bought by tax-advantaged foreign companies, and some U.S. multinational firms move their headquarters overseas. They can move to Ireland (where the corporate tax rate is 12.5%) or Germany or Taiwan, or dozens of countries with less hostile tax climates.

And continues:

The lesson here is that tax rates matter in a world of global competition and the U.S. tax regime is hurting American companies and workers. Mr. Obama would add to the damage. His election-eve campaign to raise taxes on American companies making money overseas may not be his most dangerous economic idea, but it is right up there.

Alas, this is not the only perverse incentive our current administration has supported in the past two years, see my recent blog on a handful of other ill-considered attempts.