Obama Flipping Coin on US Economy

Posted: 2009/05/06 in Economy, Offshore Banking, Taxes
Tags: , , , , , ,

Recently, President Obama called for strict reform of international tax policies specifically directed towards corporations who have been accused of “shipping US jobs overseas” and curbing tax havens.

The U.S. itself is an Offshore Banking Center

Did you know that foreign investors now hold more than 55% of the publicly-held and-traded U.S. Treasury securities. Are you aware that foreigners investing in the United States earn tax free interest on bank CDs? These assets come to the U.S. for security, tax-free investment and privacy. 

Overseas wealth inflow now plays a critical role in the U.S. economy by bridging the gap between domestic supplies of capital and demand for it. In addition, any effort to share this information with other governments for their own tax purposes is illegal. It is true and by definition that fact makes the United States an offshore tax and banking haven. Isn´t this disingenious?

Highlights

Some of the highlights of Obama’s proposed international tax reform policy include:
•Raising corporate taxes by $210 billion to those companies earning a profit overseas
•Extracting more information from foreign banks on the U.S. customers
•Adding 800 more employees for the IRS to strictly focus on international tax enforcement

The response to this proposal remains to be seen. It is estimated the proposal will face considerable opposition in Congress; there has already been strict opposition from about 200 companies including Microsoft, General Electric and the U.S. Chamber of Commerce. 

According to Dr. Marty Regalia, Chief Economist at the US Chamber of Commerce, “Deferral has been mischaracterized as a “tax break” but is actually a vital mechanism providing relief for American businesses from double taxation. Regalia continues “Tax increases that hurt US companies’ global competitiveness hurts US workers here at home. A huge tax hike on US employers is not the way to stimulate our economy.” Furthermore:

“The United States is the only major industrialized country which double taxes the overseas earnings of our companies. Since other countries don’t subject their companies to double taxation, U.S. companies need deferral to stay competitive in the global marketplace.
 
“When you limit deferral, you limit the ability of U.S. companies to compete, you impede growth in the U.S. economy, and you cause the loss of jobs – both at the companies directly impacted and companies in their supply chains.

I am not advocating the outsourcing of US business to hurt American workers; however, in a global economy, large corporations must have an international presence to maintain a competitive edge in a capitalism-centered environment. 

As with every issue, there are two sides to this coin. At the end of the day, we pose a simple question: If U.S. companies’ taxes are raised by $210 billion, what is the likelihood they will move operations entirely to more favorable jurisdictions? As an entrepreneur and international company, I certainly will be thinking twice.

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