President Obamaâ€™s plan to crack down on what he considers to be overseas tax shelters is already creating a lot of backlash from the business community. The main complain? Taxing overseas profits will directly harm American jobs.
[Martin Regalia, chief economist at the U.S. Chamber of Commerce] said the ability of companies under current tax law to defer tax payments on overseas profits — a provision Obama wants to undo — was enacted intentionally so U.S. companies could avoid double taxation by the United States and the foreign countries in which they do business.
“The deferral was instituted as a way to address or remove some of the imbalances between the U.S. tax system and our foreign competitors’ territorial tax system,” Regalia said. “This was put in knowingly. It wasn’t sneaked in. It wasn’t a loophole. So if you take it away or reduce its value, you’re going to reinstitute the competitive imbalance between U.S. multinationals and their foreign competitors.”
And, the argument goes, if American companies canâ€™t compete overseas they will shrink in size and end up laying off Americans.
What Obama wants to combat is the outsourcing of jobs overseas. By forcing American corporations to pay taxes on the profits they make from, say, a call center, the president hopes companies will think twice before moving those jobs out of the U.S. Also, heâ€™s looking for a way to raise more revenue for his endless list of plans and apparently thinks he can get this through Congress.
Of course, the problem is, the market tends to get what the market wants. If American companies canâ€™t afford to fill a market segment (either at home or abroad), a foreign company could quickly fill the void. As such, the business community has a very reasonable complaint here and I expect a fair number of conservative Democrats will think twice before upsetting the U.S. Chamber of Commerce. Weâ€™ll see.