Published: May 13, 2009 01:23 pm      

Higher taxes, weaker businesses

Last week, President Barack Obama provided more details about his proposals to raise taxes on American companies doing business overseas. The administration seeks ever more revenue to help feed a voracious federal bureaucracy, but its proposals are misguided. These tax proposals would reduce American competitiveness, eliminate American jobs and further weaken the American economy.

The populists and protectionists want to demonize American businesses that invest overseas. The truth is that foreign investment helps create jobs for businesses in every sector of our economy. About 95 percent of the world’s consumers live outside the United States, and American workers produce the high-quality goods and services that many of them want to buy. By investing in overseas markets, American businesses can deliver more of our products to foreign consumers and create more jobs here in America. According to the National Bureau of Economic Research, each dollar that U.S. businesses invest in foreign nations generates $3.50 of additional investment here at home.

American businesses succeed in the global economy despite an unfair and complex federal tax code. Our nation taxes all corporations at a higher rate than most industrialized countries. We are also one of the few nations to tax our own corporations on their income worldwide, rather than on the income generated in our territory. To mitigate the resulting problem of double taxation for U.S. subsidiaries in foreign nations, our tax code also includes a byzantine set of regulations. These regulations include U.S. tax credits for taxes paid on income overseas and the deferral of tax liability on foreign income until the earnings are brought back into the United States.

A high tax rate and a complex tax code put the United States at a competitive disadvantage, so we clearly need reform. But only some of the administration’s proposals, such as cracking down on illegal tax shelters, represent the reform we need. Others would actually make the problem worse. The administration effectively wants to eliminate the deferral of tax liability that allows U.S. businesses to compete in many foreign markets. By effectively raising taxes on income earned overseas, this proposal will make American businesses lose market share in foreign countries and force job cuts here at home.

Even fellow Democrats understand that the president’s proposal to eliminate the deferral of foreign tax liability would create a competitive disadvantage for American businesses. When Rep. Charles Rangel, the chairman of the House Ways and Means Committee, offered a similar proposal in 2007, he paired it with a reduction in the corporate tax rate from 35 percent to 30.5 percent. In doing so, he acknowledged that the elimination of the deferral alone would greatly reduce American competitiveness.

The administration would benefit by listening to the leaders of some of America’s most successful job creators, from traditional manufacturers to high-tech entrepreneurs. They understand that U.S. multinationals contribute $2.5 trillion to our economy. They employ nearly 22 million Americans directly and create millions more American jobs at their suppliers, many of them at small businesses. Our policies should encourage American businesses to seek out opportunities in the global economy, rather than punish them when they do so successfully. Proposals like the president’s would make U.S. businesses far less competitive and cede opportunities in new markets to foreign companies.

The president’s proposals reflect a protectionist worldview, not the realities and opportunities of our global economy. Our interconnected world allows goods and services to move from Austin to Austria with the click of a computer mouse. American businesses can thrive in this highly competitive environment, but not if we single them out with higher taxes. Only by simplifying our tax code and lowering our tax rates can we jump-start the next American economic expansion and create jobs for Americans.