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Drop dead!

Posted by on Jun. 9, 2009 at 10:45 AM
  • 5 Replies

 Obama Tells American Businesses to Drop Dead: Kevin Hassett

June 8 (Bloomberg) -- I’ve finally figured out the Obama economic strategy. President Barack Obama and his team have been having so much fun wielding dictatorial power while rescuing “failed” firms, that they have developed a scheme to gain the same power over every business. The plan is to enact policies that are so anticompetitive that every firm needs a bailout.

Once that happens, their new pay czar Kenneth Feinberg can set the wage for everybody and Rahm Emanuel can stack the boards of all of our companies with his political cronies.

I know, it sounds like an exaggeration. But look at it this way. If there were a power ranking of U.S. companies, like the ones compiled by football writers for National Football League teams, Microsoft would surely be first or second to Google. But last week, Microsoft Chief Executive Officer Steve Ballmer came to Washington to announce what Microsoft would do if Obama’s multinational tax policy is enacted.

“It makes U.S. jobs more expensive,” Ballmer said, “We’re better off taking lots of people and moving them out of the U.S.” If Microsoft, perhaps our most competitive company, has to abandon the U.S. in order to continue to thrive, who exactly is going to stay?

At issue is Obama’s policy to end the deferral of multinational taxation.

The U.S. now has about the highest combined corporate tax rate, second only to Japan among industrialized countries. That rate is so high that U.S. firms have an enormous disadvantage versus competitors. The average corporate tax rate for the major developed countries in the Organization for Economic Cooperation and Development in 2008 was about 27 percent, more than 10 percentage points lower than the U.S. rate.

Tax Burden

U.S. firms have nonetheless prospered because our tax code allows a business to set up a subsidiary in a low-tax country. When that subsidiary earns profits, they are taxed at the rate of that country, and don’t face U.S. tax until the money is mailed home.

The economically illiterate partisan Democratic view is that this practice is unpatriotic and bleeds jobs from the U.S. The economic reality is that American companies use this approach to acquire market share overseas. The alternative is losing the business to foreign competitors.

Don’t just take my word for it. A recent paper by Harvard economists Mihir Desai and C. Fritz Foley and Berkeley economist James Hines and published in the distinguished American Economic Review, gathered data on American multinationals to explore the impact of foreign investments on domestic U.S. activity.

Encourage Overseas Sales

Their conclusion was striking. The authors found that “10 percent greater foreign capital investment is associated with 2.2 percent greater domestic investment, and that 10 percent greater foreign employee compensation is associated with 4 percent greater domestic employee compensation. Changes in foreign and domestic sales, assets, and numbers of employees are likewise positively associated; the evidence also indicates that greater foreign investment is associated with additional domestic exports and R&D spending.”

So when firms expand their operations abroad, taking advantage of the lower foreign tax rates, it helps their workers in the U.S. Higher sales abroad (surprise, surprise) are good for domestic workers.

It is worth noting that this study, which is confirmed by a boatload of evidence elsewhere, was coauthored by the same James Hines who recently wrote a sweeping review of international tax policy with Obama’s top economist, Larry Summers. Summers has to know what the literature says.

Inexplicable Stance

So the question is, why does Obama advocate a policy that so flies in the face of everything that economists have learned? How could Obama possibly say, as he did last month, that he wants “to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens?” Further, how could Treasury Secretary Tim Geithner call a practice that top scholarship has shown increases wages and employment in the U.S. “indefensible?”

I have to admit I am at a loss. Maybe it is good politics to bash American corporations, and Obama isn’t really serious about making this change happen. But if the change is enacted, and domestic corporate taxes aren’t reduced to offset the big tax hike, the result will be a flight from the U.S. that rivals in scale the greatest avian arctic migrations.

If that occurs, the firms that stay in the U.S. will be at such a huge tax disadvantage that they will absolutely need a “rescue.”

(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He was an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.)

To contact the writer of this column: Kevin Hassett at

http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aaaBdVMkjPnU

       



by on Jun. 9, 2009 at 10:45 AM
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Replies (1-5):
mamadixon
by Gold Member on Jun. 9, 2009 at 10:46 AM

Well they are certainly obliging him,are they not?!

There is ALWAYS a choice..have the wisdom to make it, the integrity to own it, and the courage to defend it.

Malapertinent
by on Jun. 9, 2009 at 10:54 AM

http://www.amnesta.net/other/monopoly/MonopolyMan.jpg

           

One's dignity may be assaulted, vandalized and cruelly mocked, but it cannot be taken away unless it is surrendered

stormcris
by Christy on Jun. 9, 2009 at 12:23 PM

Sometimes the best investment is the one you didn't make. That's the case with one of the biggest investment pools in the country: the $700 billion Troubled Assets Relief Program, which Congress authorized last October to help combat the financial meltdown. The smartest thing the Treasury has done is to not buy troubled assets with the money. Instead, it has used most of it to buy preferred stock in banks to shore up their capital.

http://money.cnn.com/2009/06/08/news/economy/federal_government_gets_tarp_right.fortune/index.htm

Starting next week, struggling companies will be able to apply for up to $35,000 in debt-relief loans through a new stimulus program.

http://money.cnn.com/2009/06/08/smallbusiness/arc_emergency_small_business_loans.smb/index.htm

Sorry think Mr Hassett is wrong I think Obama is trying to buy all the businesses he can. But Mr Monopoly was about right.

sweetie00
by on Jun. 9, 2009 at 12:35 PM

10 percent greater foreign capital investment is associated with 2.2 percent greater domestic investment, and that 10 percent greater foreign employee compensation is associated with 4 percent greater domestic employee compensation. Changes in foreign and domestic sales, assets, and numbers of employees are likewise positively associated; the evidence also indicates that greater foreign investment is associated with additional domestic exports and R&D spending.”

10 for them-- 4 for us. Sounds great......And what will be left to EXPORT?confusedObama wants to own American businesses? That's a stretch, not buying it. FYI-The government only 'owns' 2/10ths of 1% of the entire GDP. Yeah, sounds like they are well on their way to socialism and mind control!!!!!

P.S. TARP money being paid back as we speak.

stormcris
by Christy on Jun. 9, 2009 at 1:59 PM

The TARP money that congress used as a bailout is but the money they are using to float the stock market will never be paid back.

Obama states with the GM and Chrysler bailouts once they are bought the government will get out...well after Chrysler is bought the government will still hold 10% to me that is not getting out.

Quoting sweetie00:

10 percent greater foreign capital investment is associated with 2.2 percent greater domestic investment, and that 10 percent greater foreign employee compensation is associated with 4 percent greater domestic employee compensation. Changes in foreign and domestic sales, assets, and numbers of employees are likewise positively associated; the evidence also indicates that greater foreign investment is associated with additional domestic exports and R&D spending.”

10 for them-- 4 for us. Sounds great......And what will be left to EXPORT?confusedObama wants to own American businesses? That's a stretch, not buying it. FYI-The government only 'owns' 2/10ths of 1% of the entire GDP. Yeah, sounds like they are well on their way to socialism and mind control!!!!!

P.S. TARP money being paid back as we speak.


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