Big Brother Obama’s strategy to seize control of all American business to achieve Socialism!
Obama Tells
American Businesses
To Drop Dead
By Kevin Hassett
June 8th, 2009
BLOOMBERG.COM
I’ve finally figured out the
Obama economic strategy.
President Barack Obama and
his team have been having so
much fun wielding dictatorial
power while rescuing
“failed” firms,
that they have developed a
scheme to gain the same power
over every business.
The plan is to enact policies
that are so anticompetitive
that every firm needs a bailout.
Once that happens,
their new pay czar Kenneth
Feinberg can set the wage for
everybody and Rahm Emanuel
can stack the boards of all of
our companies with his
political cronies.
I know, it sounds
like an exaggeration.
But look at it this way.
If there were a power
ranking of U.S. companies,
like the ones compiled by
football writers for National
Football League teams,
Microsoft would surely be
first or second to Google.
But last week,
Microsoft Chief Executive Officer
Steve Ballmer came to Washington
to announce what Microsoft would
do if Obama’s multinational tax
policy is enacted.
“It makes U.S.
jobs more expensive,”
Ballmer said,
“We’re better off taking lots
of people and moving them
out of the U.S.”
If Microsoft,
perhaps our most
competitive company,
has to abandon the U.S. in
order to continue to thrive,
who exactly is going to stay?
At issue is Obama’s policy
to end the deferral of
multinational taxation.
The U.S. now has about the
highest combined corporate
tax rate,
second only to Japan among
industrialized countries.
That rate is so high that
U.S. firms have an enormous
disadvantage versus competitors.
The average corporate tax rate
for the major developed countries
in the Organization for Economic
Cooperation and Development
in 2008 was about 27 percent,
more than 10 percentage points
lower than the U.S. rate.
Tax Burden
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.
Don’t just take my word for it.
A recent paper by Harvard
economists Mihir Desai and
C. Fritz Foley and Berkeley
economist James Hines and
published in the distinguished
American Economic Review,
gathered data on American
multinationals to explore the
impact of foreign investments
on domestic U.S. activity.
Encourage Overseas Sales
Their conclusion was striking.
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.”
So when firms expand their
operations abroad, taking
advantage of the lower
foreign tax rates,
it helps their workers in the
U.S. Higher sales abroad
(surprise, surprise)
are good for domestic workers.
It is worth noting that this study,
which is confirmed by a boatload
of evidence elsewhere,
was coauthored by the same
James Hines who recently
wrote a sweeping review of
international tax policy with
Obama’s top economist,
Larry Summers.
Summers
has to know what the
literature says.
Inexplicable Stance
So the question is,
why
does Obama advocate a
policy that so flies in the
face of everything that
economists have learned?
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?”
I have to admit
I am at a loss.
Maybe it is good politics
to bash American corporations,
and Obama isn’t really serious
about making this change happen.
But if the change is enacted,
and domestic corporate taxes
aren’t reduced to offset
the big tax hike, the result
will be a flight from the U.S.
that rivals in scale the greatest
avian arctic migrations.
If that occurs,
the firms that stay in the U.S.
will be at such a huge tax
disadvantage that they will
absolutely need a “rescue.”
(Kevin Hassett,
director of economic-policy
studies at the American
Enterprise Institute,
is a Bloomberg News columnist.
He was an adviser
to Republican Senator
John McCain of Arizona
in the 2008 presidential election.
The opinions expressed
are his own.)
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