Taxing the Treasury
Slate's Timonthy Noah looks at why the Treasury Dept., so quick to partisanly analyze candidate Kerry's tax plan (look especially at their new practice of inserting campaign slogans into department press releases), hasn't performed a similar "public service" on his proposal to eliminate the tax advantage for corporations that outsource jobs.
Why such rare restraint from Bush administration political appointees? Because Kerry's plan makes sense and is both politically and fiscally smart. Writes Noah:
"The most attractive aspect of Kerry's plan is that it harnesses some crowd-pleasing protectionist rhetoric that Kerry has indulged in—initially to counter Howard Dean—to an unexpectedly reasonable reform. "From cars to computer software to call centers, millions of Americans have seen their jobs shipped overseas," Kerry likes to say. But Kerry doesn't propose that tariffs be hiked, import quotas be imposed, or anything like that. He simply says that the government should stop giving corporations an incentive to ship jobs overseas. Rather than tamper with market imperatives, he wants to restore them.
"When an American company shifts production or services overseas, it's mainly so it can pay its workers less. But the company also, gallingly, pays lower taxes. There are two reasons for this:
"1) Foreign corporate income is not subject to the United States corporate income tax until the money is brought back into the United States. If the tax-deferred income is "repatriated," the company may reduce its domestic tax bill by whatever amount it has already paid in taxes overseas.
"2) The foreign tax is almost never as high as the domestic tax. On average, it's one-third as large. These are countries, after all, that are desperate for American jobs. Since it's fairly easy for American corporations to set up their bookkeeping in a way that keeps foreign profits abroad—at least on paper—the practical result is that, in outsourcing jobs to another country, the company enjoys a substantial tax cut.
"Everybody agrees that this makes no sense."
Why such rare restraint from Bush administration political appointees? Because Kerry's plan makes sense and is both politically and fiscally smart. Writes Noah:
"The most attractive aspect of Kerry's plan is that it harnesses some crowd-pleasing protectionist rhetoric that Kerry has indulged in—initially to counter Howard Dean—to an unexpectedly reasonable reform. "From cars to computer software to call centers, millions of Americans have seen their jobs shipped overseas," Kerry likes to say. But Kerry doesn't propose that tariffs be hiked, import quotas be imposed, or anything like that. He simply says that the government should stop giving corporations an incentive to ship jobs overseas. Rather than tamper with market imperatives, he wants to restore them.
"When an American company shifts production or services overseas, it's mainly so it can pay its workers less. But the company also, gallingly, pays lower taxes. There are two reasons for this:
"1) Foreign corporate income is not subject to the United States corporate income tax until the money is brought back into the United States. If the tax-deferred income is "repatriated," the company may reduce its domestic tax bill by whatever amount it has already paid in taxes overseas.
"2) The foreign tax is almost never as high as the domestic tax. On average, it's one-third as large. These are countries, after all, that are desperate for American jobs. Since it's fairly easy for American corporations to set up their bookkeeping in a way that keeps foreign profits abroad—at least on paper—the practical result is that, in outsourcing jobs to another country, the company enjoys a substantial tax cut.
"Everybody agrees that this makes no sense."
posted by John at 10:43 AM
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