On Monday, President Obama proposed to close the loopholes that come with corporate tax on the "multinational corporations" and to crack down on tax havens overseas. The purpose in doing such a thing is to keep jobs here in the US, and to equalize the tax code. Yet is keeping all of the jobs in the US always a good thing? In trade, if we do not specialize, then we do not have an advantage. Yet if Obama does this without lowering the corporate tax rate, it is just going to encourage companies to take their jobs elsewhere. There are three proposals being discussed. The first being to reform the "deferral" rule, a rule that allows US multinational corporations to deduct expenses for the things they do overseas, where they also do not have to pay income tax on those things as well, unless that money is brought back to the US. The second proposal is a tax cut for "R&D credit", or research and development, that is done in the United States. The government is attempting to make it more difficult for companies to abuse the foreign tax credit, as right now they can claim credit against their income taxes for the taxes they paid in a different country. The third proposal is changing the way the IRS handles things, specifically the "check the box" rules; rules that allow companies to shift income and escape taxation.
The business community obviously is not thrilled about these new changes, as well as the foreign countries, the "tax havens" as we will not be offering as many jobs with these new proposals.
-CH
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