Obama’s Big Tax Hike on Multinationals Means Fewer American Jobs and Reduced U.S. Competitiveness

The new budget from the White House contains all sorts of land mines for taxpayers, which is not surprising considering the President wants to extract another $1.3 trillion over the next ten years.

One of the worst proposals targets American companies that compete in foreign markets. Under current law, the “foreign-source” income of multinationals is subject to tax by the IRS even though it already is subject to all applicable tax where it is earned (just as the IRS taxes foreign companies on income they earn in America). But at least companies have the ability to sometimes delay when this double taxation occurs, thanks to a policy known as deferral. The White House thinks that this income should be taxed right away, though, claiming that “…deferring U.S. tax on the income from the investment may cause U.S. businesses to shift their investments and jobs overseas, harming our domestic economy.” In reality, deferral protects American companies from being put at a competitive disadvantage when competing with companies from other nations, and therefore protects American jobs. This video has the details.

The American Enterprise Institute just held a conference last month on deferral and related international tax issues. Featuring experts from all viewpoints, there was very little consensus. But almost every participant agreed that higher taxes on multinationals will lead to an exodus of companies, investment, and jobs from America. Obama’s proposal is good news for China, but bad news for America.