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International Tax Plan: The Hurt Felt Around The World

President Obama recently revealed that he has intentions of revamping the rules governing international taxes. This has caused quite a stir among businesses that operate internationally and rightfully so. The President’s plan aims to cut back on the tax advantages that international companies enjoy. Obama defends his plan by saying that by increasing the taxes that these businesses have to pay, it will allow more jobs to be created domestically. In addition to encouraging US based jobs, the plan would restore fairness in the taxes being paid by multinational and domestic businesses. The plan would have three main effects on businesses. It would not allow businesses to defer their taxes in other countries so that they will not have to pay the US taxes. Also, the legal effects the use of low-tax offshore accounts used by international companies would be changed. Finally, companies would no longer be able to shift their earnings into them to avoid the higher taxes and create foreign-tax credits. The Obama administration wants to close these “tax loopholes” in an attempt to recover over $21 billion a year that is lost tax dollars. President Obama has said that he thinks the tax code is wrong because it lets people to pay lower taxes on jobs created outside the United States. For example, creating a job in China would cost less in taxes than a job being created in New York. He also has announced that he plans to add almost a thousand international tax inspectors in an effort to combat offshore bank accounts used on an individual level.

The problem with raising taxes for these multinational businesses is that it will cripple their ability to compete internationally. The countries that the United States competes against have these tax breaks, which is why the US should also. If they are able to pay lower taxes, so should we. Currently, as long as the income earned in another company stays in the country that it is earned, it is acceptable for tax not to be paid on it in the US. This is a fair prospect because tax is being paid in the country where it is earned and it should not have to be taxed twice if it is staying in the same country it was earned and taxed in. Creating jobs in the US seems like a hopeless effort for the most part in today’s global economy. The fact is that we live in a world where countries compete and work with one another. Trade is abundant and by globalization, prices can be lowered. Global business is not going away and a tax increase is not going to help the American economy. If anything, it will hurt it. Prices will increase and worse, companies will be forced to sell their international branches to countries that do not have taxes on offshore profits.

President Obama is striving for a working situation in the US that is not possible because of our standards of living, labor laws, and mandatory wages. Businesses need to send their jobs to other countries in order to keep prices low. By strong-arming businesses to keep their jobs in the US, it will greatly increase the money they spend on wages and benefits for their employees. Labor is cheap and readily available in countries such as India and China, so it makes sense to pay less taxes in creating a job overseas! A company simply cannot pay an American worker the same wages that they will be able to pay overseas. It is easy for people to say buy domestic and keep jobs in the US, but they would not be singing the same tune if they were unable to walk into Walmart and purchase their DVD players for $40.

Therefore, it makes sense that American businesses that are operating globally should be able to continue to receive the benefits of the current tax system. They are not skipping out on taxes. They are making money in another country, paying taxes on it there and putting those same profits back into the subsidiary in that same country. The United States is the only country that has double-taxes. If they are expected to be able to compete globally, they need the deferral rule so they stay on a level playing field with the other international businesses. Globally competing businesses from the United States support jobs domestically and to cripple them would have a trickle down effect on the domestic jobs. The economy needs to be stimulated, but tax increases are not the solution. Ronald Reagan believed that decreasing taxes and giving people more of their money back would increase spending and help the economy and expand the tax base, known as the Laffer curve. Reaganomics worked then and would work now. International taxes need to be left alone.

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