Tuesday, October 13, 2009

Obama Drops Plan for Corporate Tax Increase

While still looking for a way to fund health care reform, the Obama administration has dropped a plan to raise over $200 billion by changing a series of tax laws affect multinational corporations. According to the Wall Street Journal, the main reason the White House was hoping to make the change was because of their need to find new sources of federal revenue to fund their increased spending.

Jason Furman, a White House economic adviser, made that point clear at the end of a session with a dozen or so lobbyists in March. Catherine Schultz, head of tax policy at the National Foreign Trade Council, who was at the meeting, says Mr. Furman basically told the group: "We need the money."

From early on, there were reservations about the proposal among key lawmakers, and the White House indicated it was open to alternatives. Prominent members of the House Ways and Means Committee from both parties worried the provision would erode the competitiveness of U.S. companies abroad.

The tax dispute is rooted in an unusual provision in the U.S. tax code. Nearly all industrialized countries tax domestic companies only for revenues earned at home. The U.S. taxes companies on world-wide profits. But current U.S. law allows American multinationals to defer paying taxes on revenues earned abroad until companies repatriate them, usually in the form of cash dividends to the parent company.

Critics long have complained that the provision encourages companies to avoid U.S. taxes by expanding production on foreign soil. On the campaign trail last year, President Barack Obama promised repeatedly to "end tax breaks for companies that ship jobs overseas."

Blog Archive