by Jack Lee
“WASHINGTON President Barack Obama vowed to “detect and pursue” American tax evaders Monday as he announced a plan to close tax loopholes and clamp down on overseas shelters.
The president said he wants to prevent U.S. companies from deferring tax payments by keeping profits in foreign countries rather than recording them at home. He also called for more transparency in bank accounts held by Americans in tax havens such as the Cayman Islands.”
On the face of it you might think this is a good thing, we are keeping money, taxes and jobs at home, right? Not necessarily. When businesses defect to a foreign country it is typically an act of desperation. Why else would a company abandon the American workers they have invested time and money in training and who are already in place in a country of world class stability and security and all the other natural resources so abundant here? The most frequent response was, regulations and taxes were turning the company’s bottom line into red ink, so they packed up and moved to a low overhead country XYZ.
However, all was not lost, because the move of that company and many others in the same fix to country XYZ raised their local economy and that income boost allowed them to buy US goods they could never afford before and in return they provided cheaper, labor intensive, goods to American consumers. This transistion temporarily upsets jobs and there are adjustments to make to be sure, but eventually both sides, emerging economies and dominant economies, become dependant on each other as they both prosper.
American’s have always adapted well to change. Our workers displace in one segment of a work force are trained up into new areas and it was in most respects a win-win, according to Thomas Freidman, a New York Times Columnist who authored Flat World. The book is a great explanation of the dynamics change and why economies must evolve in a free market place.
When government interfers in the forces of the free market because they are overly concerned about losing tax revenues from an American company that is outsourcing we run into trouble. Obama is now chasing companies that are moving overseas to identify their income and penalize them for creating the overseas branch. The company has two choices, pay it or move out of the United States completely. If their back was to the wall before the move paying the tax penalty probably isn’t a viable option. So instead they’ll be gone completely and instead of getting 10% of something we will have 100% of nothing.
To be honest there was a time when I might have applauded this tax penalty move as an isolationist, but when I researched the situation it turns out I was wrong. In order for the US to maintain it’s global economic dominance we need to have the most innovative and proactive businesses and those are two things government is not known for is it? Government takes from us and they are not innovative nor proactive. It’s up to business to find its own solutions, government can’t do it, but they can sure screw it up!
Obama’s government is about to take too much and this is being short sighted. By a tax assault on big business and outsourcing they will fare no better than raising taxes on individuals. All this will do is suppress economic growth which in turn reduces government revenue, which then forces the government to raise more taxes to make up for the previous losses and the cycle continues… until companies are in ruin or they have moved away and left behind empty warehouses and factories where American’s workers and a robust economy thrived.
Raising taxes has the same impact as overregulation, both are sure ways to restrain the growth of capitalism and jobs and weaken the economy.