More Obama Dead-on-Arrival Tax Proposals

Is there a point to beating your head against a concrete wall? The answer would seem to be "no", yet President Obama continues to do just that with dead-on-arrival proposals.

Please consider Barack Obama Plans to Tax Overseas Cash Piles.

President Barack Obama will propose raising $238bn by levying a one-off tax on the cash piles held by US companies overseas to repair the US’s crumbling roads and bridges.

The measure, a key plank of the US president’s budget to be outlined on Monday, would impose a 14 per cent “transition” tax on the estimated $2tn in earnings US companies have amassed overseas, the White House said on Sunday.

Critics say the existing offshore cash mountains testify to the aggressive foreign tax planning by US companies, while businesses cite them as evidence of the handicaps they face under an uncompetitive US tax regime.

Mr Obama will also propose a 19 per cent tax on future foreign earnings, giving companies a credit on foreign taxes and allowing them to be reinvested in the US with no additional penalty. Under the current system, US companies pay little or no tax on their earnings abroad until they are brought back into the US.

The money raised would be used to fund about half of an ambitious six-year programme of highway, bridge and transit upgrades, one of the president’s main priorities during his final two years in office and an initiative that has attracted some degree of bipartisan support. The remainder of the programme would be financed by the existing highway fund.

“This transition tax would mean that companies have to pay US tax right now on the $2tn they already have overseas, rather than being able to delay paying any US tax indefinitely,” a White House official said.

Wall of Dispute

1. Critics say the existing offshore cash mountains testify to the aggressive foreign tax planning by US companies.
2. Businesses cite aggressive tax planning as evidence of the handicaps they face under an uncompetitive US tax regime.

Curiously, both statements are true. And the president's plan does nothing to fix the fundamental problem.

US tax code encourages capital flight. So, corporations do just that, effectively wasting a mountain of money on lawyers and tax schemes in the process. Then, US corporate profits sit abroad, waiting for repatriation holidays which inevitably come every time there is an economic slowdown.

Mish Proposal

The initial problem is US corporate tax rates are too high. I propose cutting them to zero. Were that to happen, instead of US businesses sheltering money overseas, foreign corporations would setup offices in the US, moving as much here as they can.

I believe growth in economic activity would far outweigh any lost revenue.

In spite of obvious merit, my proposal would never fly. The president would veto it. So how about a more modest corporate flat-tax with no loopholes, at a rate far lower than most of Europe?

Such a proposal would immediately end all this bickering on both sides. Republicans would get what they want (lower taxes). And Obama would get something he wants (ending foreign tax loopholes).

Instead, he proposes dead-on-arrival ideas.

Does Obama love beating his head against the wall with zero-chance proposals? If he's attempting to pound some sense into his head, it's clearly not working.

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