Tags: Barack Obama | Corporate Earnings | IRS | Republican Party | U.S.

Obama's Corporate Tax Plan Is Wrong

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Friday, 06 Feb 2015 01:35 PM Current | Bio | Archive

According to press reports, President Obama’s corporate tax proposal offered a tax holiday of charging only 14 percent of all earnings now stashed in foreign countries, when it will be returned to the United States. Thereafter the tax will be 19 percent, which presumably is mandatory.

Ignoring for a moment that the Republican Party immediately rejected the proposal for ideological reasons, the plan is seriously flawed. According to reports, there are more than 600 billion dollars of untaxed earnings stashed or invested in foreign countries, a 14 percent rate would equal a horrendous tax bill.

First of all to ask Corporations to pay a 14 percent ax on billions of accumulated dollars is a nonstarter. You may find very few, if any, that will take this offer. The fact is, U.S. corporations don’t need the extra capital from abroad, since it can be repatriated tax free in the form of a loan from their foreign operations (as long as this type of a loan is repaid within a year). This restriction is meaningless; since the returned loan can simply be paid — using yet another loan from a U.S. subsidiary abroad.

Furthermore, to charge corporations only 19 percent  on earnings from abroad is highly discriminatory towards other companies which have no foreign factories and yet still have to pay 35 percent of the corporate income tax.

A much fairer way to restructure the corporate income tax system is to charge everyone an even 20 percent, as I have previously suggested (see The Palm Beach Post Article of June 12, 2013).

The reason is — as we speak — the IRS only collects 20 percent on all reported corporate income. This includes all profit from foreign sources, even though not a single penny is taxed.

Here is a tabulation of how such a proposal would work:
  • The current tax system. Now, 57 percent of all listed corporate profit is generated in the United States. The tax on this is 35 percent. The IRS gets 20 percent. Note, 43 percent of listed income is foreign generated. The income tax paid —  zero percent.  The total take by the Internal Revenue Service — 20 percent.
  • The proposed tax overhaul calls for 57 percent of the domestic portion, plus 43 percent  of the foreign portion. Therefore, all pay 20 percent income tax. the total IRS take — 20 percent.
Under such a system our government stays even as far as tax revenues is concerned. This is called, a “revenue neutral” proposal. The 43 percent of foreign profit earned still could deduct foreign taxes from the proposed 20 percent rate.

It seems to me this would be of great benefit to our economy, especially since the resultant proposed 15 percent reduction of the domestic tax rate would finally put U.S. manufacturing  on even footing with its foreign competitors.

It would also encourage multi-national companies to shift more production from abroad back to the U.S. — once this unfair tax loop hole is eliminated.

Currently, the U.S. imports approximately $400 billion of foreign goods per year. Excluding oil and other vital goods, it is safe to say that $ 300 billion could be produced in this country. This in turn could produce jobs for about 3 million factory workers — something our country needs badly.

My wish is that this blog would be read by presidential candidates to propose something like benefiting the whole U.S. economy — and not only political agendas.

Hans Baumann is a licensed engineer in four states and a member of Sigma Xi, the Scientific Research Society. He is an adviser to the dean of the University of New Hampshire Business School. Baumann has published manuals on valves and was a contributor to many works including the "Instrument Engineers' Handbook" and the "Control Valves Handbook." He has also self-published several books on business management and German history. His book "Hitler's Fate," suggests that Adolf Hitler did not commit suicide and survived World War II. For more of his reports, Go Here Now.

 

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HansBaumann
According to reports, there are more than 600 billion dollars of untaxed earnings stashed or invested in foreign countries, a 14 percent rate would equal a horrendous tax bill.
Barack Obama, Corporate Earnings, IRS, Republican Party, U.S.
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2015-35-06
Friday, 06 Feb 2015 01:35 PM
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