June 8th 2009
Obama To American Business: “Drop Dead”
No, the president didn’t really say “drop dead” out loud, at least not so the public heard it; the quotes are from a headline over a Kevin Hassett commentary on Bloomberg: Obama Tells American Businesses to Drop Dead.
Hassett’s piece centers on Obama’s plan to drop the deferral on multinational taxation. Don’t fall asleep. This is good stuff. It’s all about slugging it out in the marketplace, and how U.S. firms can stay competitive despite suffering the second highest corporate tax rate in the industrialized world:
U.S. firms have nonetheless prospered because our tax code allows a business to set up a subsidiary in a low-tax country. When that subsidiary earns profits, they are taxed at the rate of that country, and don’t face U.S. tax until the money is mailed home.
The economically illiterate partisan Democratic view is that this practice is unpatriotic and bleeds jobs from the U.S. The economic reality is that American companies use this approach to acquire market share overseas. The alternative is losing the business to foreign competitors.
Hassett cites a study by Harvard economists Mihir Desai and C. Fritz Foley and Berkeley economist James Hines that show the system works for America:
The authors found that “10 percent greater foreign capital investment is associated with 2.2 percent greater domestic investment, and that 10 percent greater foreign employee compensation is associated with 4 percent greater domestic employee compensation. Changes in foreign and domestic sales, assets, and numbers of employees are likewise positively associated; the evidence also indicates that greater foreign investment is associated with additional domestic exports and R&D spending.”
In other words, if American companies do well overseas, it’s good for America. Duh. Except it’s not duh with the Obamites. Co-author James Hines recently wrote a review of multi-national tax policies with Obama econ-guru Lawrence Summers, so it’s clear there is an understanding of these fundamentals in the White House. And yet:
How could Obama possibly say, as he did last month, that he wants “to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens?” Further, how could Treasury Secretary Tim Geithner call a practice that top scholarship has shown increases wages and employment in the U.S. “indefensible?”
Hassett muses that one possible answer is that Obama would like to see all American companies weakened to the point that they need to be “saved” by a government bail-out. He’s just joking … right?
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