Obama Shenanigans on 'Factoryless' Exports, Taxes, Employment, Jobs

Corporate Deserters

President Obama was beating the drums on Thursday in Los Angeles regarding corporate tax deserters, companies that move headquarters or tax shields to another country in order to escape high US tax rates.

The LA Times provides the details in President Obama Hits 'Corporate Deserters' in Populist L.A. Speech.

Tearing into companies he dubbed “corporate deserters,” President Obama on Thursday launched an election-year push to make it harder for U.S. companies to avoid paying taxes.

Under a bright sun at a trade and technical college in Los Angeles, Obama issued a damning assessment of a “small but growing” group of companies taking advantage of a “loophole” in corporate tax law by reorganizing overseas, often in low-tax countries.

Obama accused the companies of “renouncing their U.S. citizenship” and “fleeing the country” while sticking U.S. taxpayers “with the tab.”

“You shouldn’t get to call yourself an American company only when you want a handout from the American taxpayer,” Obama told a crowd gathered at the Los Angeles Trade-Technical College. The speech capped a three-day West Coast trip primarily focused on raising money for Democrats ahead of the midterm elections.

Obama’s target on Thursday was so-called inversion transactions, a practice that allows U.S. companies to reincorporate overseas, either through a merger or purchase of a foreign entity, and thus avoid paying U.S. taxes on its foreign earnings.

Who Cares About Legalities?

The president acknowledged the practice is legal, but added “my attitude is, ‘I don’t care if it’s legal -- it’s wrong.’”

Well, who gives a damn about legalities anymore? Certainly not president Obama, as he has proven many times over.

Besides, as we all learned from President Nixon "When the president does it, it's not illegal".

No president has been a finer student of Nixon philosophy than Obama.

People Freaking Out

Business Insider's "eye-popping" chart of the day on Why People Are Freaking Out About 'Tax Inversions' adds a big megaphone to Obama's tune.



'Factoryless' Exports

In addition to seeking higher taxes, Obama simultaneously proposes a rule change to classify "factoryless goods producers" as domestic manufacturers, even if the manufacturing jobs associated with those producers are offshore.

The IB Times reports Obama's jobs proposal was  Slammed by Unions.

A decade ago, as the United States hemorrhaged manufacturing jobs, the federal government considered reclassifying fast food as a manufacturing industry. Sound ludicrous? Today, with the manufacturing sector still ailing, the federal government wants to take something called "factoryless goods" and categorize the firms that make them as manufacturers. As part of the plan, the government could also classify some foreign-manufactured goods as U.S. exports.

Now, as the White House seeks to portray its domestic manufacturing initiatives as successful, the administration has proposed a rule change to classify "factoryless goods producers" as domestic manufacturers, even if the manufacturing jobs associated with those producers are offshore. A 2013 Study by Dartmouth Business School researchers found that had that rule been in place, it would have officially increased U.S. manufacturing employment figures by 595,000 jobs in 2002 and 431,000 jobs in 2007.

In response, labor unions and consumer groups this week announced they organized more than 26,000 public comments against the proposed change. They charge that the reclassification could undermine the Buy America Act, which requires government purchasers to give preference to U.S.-made goods.  They also argue that such a reclassification would artificially and inaccurately inflate the number of domestic manufacturing jobs reported by the government and would hide the true economic cost of trade proposals, such as the pending Trans Pacific Partnership.

Though the proposed change could be politically useful for lawmakers and is a hot issue for labor advocates, some economists support the initiative on the grounds that it provides more precise data. As the Dartmouth researchers argue, such reclassification may be necessary because "factoryless goods" are "a new type of production function in the global economy."

Ultimate in "Factoryless Goods"

Do US dollars qualify as "factoryless" goods? If not, why not? Dollars can be manufactured at will, electronically, without a factory, and China gladly takes all of them we print.

China wants dollars and we want junk. That should make everyone happy.

The only problem is classification. All Obama has to do is count US dollars as a "new type of production" and the trade deficit magically goes away.

On a more serious note ...

I propose elimination of corporate income taxes entirely. 

I recently discussed a zero percent corporate tax rate  in response to a proposal by Barry Ritholtz regarding a "Fair Tax" structure.

For a detailed discussion, please see Reader Emails and Other Reflections On the "U.S. Corporate Tax Dodge".

The article covers numerous points. For those who want a quick synopsis, here goes:

"Ritholtz wants uniformity and fairness. I agree. Taxation at 0% would not only provide it, businesses would come to the US, instead of escape from the US. How bad would that be?"

To address the trade deficit completely and easily, also see Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold's Honest Discipline Revisited

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com