Tax Proposal Garners Fresh Criticism -- From Steve Forbes

2 years ago

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With concerns about the budget deficit on the rise, and President Obama's approval rating on the decline, some political observers continue to predict tax increases to finance the Democrats' plans to increase federal spending.

One "revenue-enhancing" proposal put forward earlier this year, which I wrote about in July, has yet to be taken off the table by the administration. It would impact U.S. companies with operations abroad by stiffening "the rules on the credits American firms can claim for the foreign taxes they pay, and limit how much companies can defer tax payments on their foreign earnings," according to Economist.com. Critics charge the proposal could amount to a $200 billion-plus tax increase.

In addition to the technology sector, which has registered fresh and sustained displeasure with the proposal, other big names in business are speaking out. Most recently, Steve Forbes, the editor-in-chief of Forbes magazine and former presidential candidate, has attacked the proposal in harsh terms.

Last week, during an interview with KWHN-AM 1320 in Fort Smith, Ark., Forbes -- who describes himself these days not as a conservative, but as "an agitator" -- shot back at administration assertions that the proposal would help create jobs in the U.S. and put a stop to "outsourcing." While the proposal is ostensibly aimed at pressuring companies to maintain operations and jobs here, Forbes argued that curbing tax deferral, in particular, "means less investment here in the United States."

"That money will never come back to the United States," he added, "and it'll also give an inducement to companies, especially foreign companies that have put facilities here, to move them to Canada or to Ireland or elsewhere -- to Mexico even -- and so we'll lose on that."

In sum, according to Forbes, rather than creating or maintaining jobs in the U.S., what the Obama administration proposes would trigger more of the very practices it is hoping to stop. Harvard Finance Professor Mihir A. Desai seems to agree.

A recent abstract of his paper, "Securing Jobs or the New Protectionism? Taxing the Overseas Activities of Multinational Firms" states that "a move toward not taxing the foreign activities of American firms, rather than taxing them more heavily" would constitute a better bet in terms of meeting President Obama's stated objective.

Academic discussions over tax policy can be pretty dry, to be sure. The interesting question is: how will Congress see it?

On the one hand, there simply aren't too many "deficit hawks" left in the Democrats' ranks on Capitol Hill; and make no mistake, Democrats control Congress. On the other, representatives of tech-heavy states such as California and Washington, as well as moderate Democrats up for re-election in 2010 (including, for instance, Sen. Blanche Lincoln of Arkansas -- the state where Forbes gave last week's interview) might resist getting on board with any measure that can be rationally characterized as a job-killing tax increase.

If President Obama is determined to force the issue, he might find that tough fights do not end with health care.

Filed Under: Taxes

Tagged: federal spending, FederalSpending, steve forbes, SteveForbes, taxes, technology, technology companies, TechnologyCompanies

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