Job Destroying Taxes Pushed by Republicans.

Republicans such as House Speaker Boehner and tea party members rail against “job destroying taxes” yet support tax provisions that encourage “American” multinational corporations to shift jobs and profits overseas, the better to “compete” against “foreign” multinational corporations. But the mutinationals all operate worldwide wherever they think they can make the most money.

There is little dispute that corporations should be profit maximizers for their shareholders and that, if they can take advantage of tax subsidies, they should do so. Indeed, GE treats its roughly 90-lawyer tax department as a profit center. Unfortunately, while many business tax subsidies cannot be justified on economic grounds, they are so complicated that the media ignore them and the  money the corporate beneficiaries spend to get and keep them.

A prime example is the section of the tax code that deals with “foreign” profits. Under it, profits are not taxed until they are repatriated to the United States. At the same time, however, foreign expenses can be written off immediately against domestic profits. And, because we use the transfer pricing method – which allows multinational corporations to allocate profits essentially wherever they say they earned them – these companies shift profits and jobs to low or no tax countries. Marty Sullivan and Lee Sheppard in Tax Notes have detailed numerous examples of this shifting, but rather than try to stop it, the Republicans, at the behest of the multinationals, want to accelerate this shifting of profits by adopting a “territorial” tax system which would essentially exempt all foreign profits from U.S. taxation to help “American” multinationals compete with “foreign” multinationals. 

Press coverage of this issue has been, to be kind about it, abysmal. It has focused on the best way to help “American” corporations compete against “foreign” corporations because of the high U.S. corporate tax rate, ignoring the fact that the effective U.S. corporate tax rate is just about the same as in most advanced countries. Moreover, the taxation of foreign profits has a significant impact on American jobs and income, and, importantly, it puts domestic corporations, which have to pay taxes, at a real competitive disadvantage when competing with multinational corporations that don’t. 

Where are the cries about these “job destroying” tax provisions? Are the media being manipulated by high priced corporate PR? It would seem so. 

For more please see my article on NiemanWatchDog.org, published by Harvard Nieman Fellows.http://niemanwatchdog.org/index.cfm?fuseaction=about.viewcontributors&bioid=100

Posts to Tax and Economic Sense will appear every Thursday after 5:00 p.m. EST.  We welcome your comments.
Martin Lobel
Attorney at Law
Partner Lobel, Novins & Lamont
Washington, D.C.