Obama's Tax Deferral Plan

The Obama administration in their budget proposal outline, recently indicated that they are leaning towards finding a way to close the tax deferal techniques used by multinational corporations to shelter income.

The general rule is that income produced in a foreign country by a corporation that is set up in that country (subsidiary of US company) is not subject to taxation on their income in the United States.  This is referred to as foreign source income.  

Obama wants to make the foreign source income currently taxable, and avoid the benefit of deferral.  Belieiving this will reap billions of dollars in taxable income.  He is right, it will produce billions of dollars, but it will severely harm the corporations in intends to tax.  

Such an approach would be a enormous disaster for multinationa companies, GE, Coke, Procter and Gamble, Caterpillar, and the like.  Especially with pharmeceutical companies like Phizer, Abbot Labs, Eli Lilly and other smaller drug companies.  The drug companies often move their intellectual property offshore to avoid the chance of heavy income taxation by the United States Treasury.   Other manufacturing companies have similiar intentions.  

The problem with Obama's proposal (and there is many) is that requiring income inclusion by American companies of their offshore income, will result in reduced profitability, a drop in their stock prices and potentially an enormous amount of layoffs to control costs and cushion the effects of the increase in taxes.  

If Obama wants to continue a rise in unemployment and further damage the economy a plan to end the benefits of offshore deferral will certainly accomplish that goal.  This is coming from someoen that fully supports Obama and his general agenda.

If Obama really wants to increase Treasury revenues and raise employment in the United States, he should take two actions.  

(1) The administration should look into enacting (as the Bush administration did) a tax holiday on income being repatriated back into the United States.   Allow the multinations to bring their income back, without being subject to burdensome tax rates currently in effect.

(2) Lower corporate income taxes.  This will increase the incentive for foreign corporations in high tax jurisdictions (UK, Germany, etc) to set up their subisdiaries in the United States. Allowing the United States to tax their profits and add to the Treasury.  This will also induce American corporations to keep their intellectual property in the United States, instead of moving it offshore increasing the amount of jobs and revenue for the Treasury.  

These are the actions the Obama administration should take, not increasing the burden on our employers and our jobs.