(Added note: Most of you probably want to read about the Norway events. There's a lot to be said about that -- but
this story is even more important.)
The Republican "Gang of Six" is making a demand that will actually increase
the deficit -- enormously. Trying to sell this proposal as a debt-reduction measure is like calling a proposal to lace breakfast cereal with arsenic the "Healthy Children Initiative."
And I see no indication that Obama will fight this measure.
To put the matter very simply: The Republican plan will make it even more enticing for American corporations to outsource jobs.
Actually, "enticing" may be the wrong word. The new tax plan will make it economically mandatory
to move jobs outside this country
They want to give billions of dollars in tax savings to the richest corporations in the US, and encourage them to move jobs overseas. That is the logical result of changing to a system of taxing income only if it is “earned” in the US. This is called a “territorial taxation” system. Currently we have a hybrid system. We tax income from whatever source, but we give a credit for foreign taxes on the income, and we don’t tax any of the money until it is repatriated.
The territorial tax will delight these monster corporations that have accumulated billions of untaxed profits overseas. They can invest the money off shore to create any new business they might want to enter, in any country they might like, and with little effort completely avoid US taxation. This removes any reason for any corporation to manufacture in the US for export.
The system in place now already
encourages American firms to outsource jobs. On February 16, 2008, at a gathering in Wisconsin, Obama spoke against these tax loopholes:
But I won’t stand here and tell you that I’m going to accept an America where we do nothing to help our workers who have lost jobs and opportunities. We are going to end those tax breaks for companies that ship our jobs overseas when I am president.
This was a reference to something called the "deferral clause" in the U.S. tax code. Now he's going to increase the very tax breaks he once denounced.
To comprehend how the deferral clause works, you must understand that other countries tend to have lower corporate
tax rates and higher personal
income tax rates. A company in the United States pays 35 percent. An American company operating in (say) the Czech Republic pays taxes to that government at the lower Czech rate, which is twenty-something percent. If those overseas profits return home, they are taxed at the American rate minus the amount already paid to the Czechs. This system encourages corporations to keep the money overseas as long as possible.
That's how it works now. The Gang of Six wants to change the situation. They want none of the tax money to go to Uncle Sam.
The deferral clause is one of the loopholes which General Electric used when it paid no U.S. taxes at all in 2010. In 1955, corporations paid nearly a third of Uncle Sam’s annual operating budget; today, that figure has shrunk to well under seven percent. At least once every seven years, more than half of the corporations in the United States pay zero taxes.
Expect that percentage to go up. Way up.
The 35 percent statutory corporate tax rate (the only number usually mentioned by neo-liberals who seek to have corporate taxes reduced or eliminated) differs from the effective
rate, the amount actually paid. The effective rate, 26.5% under Reagan, dropped to 17.2% under George W. Bush and has not appreciably risen during the Obama years.
Foreign governments collect twice as much corporate tax as we do when those revenues are computed as a percentage of Gross Domestic Product.
Well, guess what? If the Republicans get their way -- and they will -- America will collect far less
in corporate taxes. When your job is outsourced by an American company, the tax paid to a foreign government will be the only
The deficit reduction plan will, in effect, greatly increase the deficit. Not only will it eliminate much corporate tax revenue, it will put many Americans out of work.
I could understand using tax breaks to encourage corporations to invest in America. Alas, the libertarians and the Tea Partiers want to do the exact opposite: They want to encourage outsourcing.
They want to destroy American jobs. Your
If you look up the term "territorial tax" in Google News, you'll see that the mainstream media has largely ignored this issue. This is how America ends: With the silent passage of a job-killer proposal that nobody even knows is there.