COLUMN: Who should be taxed less?
Tax codes, in my opinion, are far too complicated when they create a new job sector centered on understanding them. Naturally, I was somewhat enthusiastic when I heard about President Obama’s proposal to simplify corporate taxes. Then I read what was actually in the tax reform.
The president is soliciting his new, destined-to-fail, corporate tax reform under the guise of simplifying the system by closing loopholes and lowering the official rate from 35 percent to 28 percent. Of course, that sounds good on the surface. I like lower, simpler and evenly distributed taxation.
Yet, while the new proposed plan would lower taxes by broadening its base, it certainly won’t make it any more simple or fair.The reality is that President Obama isn’t seeking to eliminate loopholes but shift them to different sectors.
Under the proposed changes, taxes would no longer favor oil companies and utilities but green energy and manufacturing. While I understand the desire to shift tax incentives from oil to green, the move seems premature.
A shift in tax code like this can largely be seen as an investment. We pay more for oil in order to give green energies a tax break. Yet it is still unclear if many green energy sources will be a viable alternative to oil, and tax codes aren’t easy to change. This means 25 years down the road we could still be providing tax breaks to green technologies that were a bust.
Then there is the fact that increasing taxes on domestic oil will only increase our incentive to buy foreign oil. There is a simple solution, though. Why not shift tax incentives from oil to a proven, sustainable, reliable energy source? Unfortunately, the only such energy source is nuclear energy, and we’re too scared of that.
The desire to shift tax incentives to manufacturing is another thing that baffles me. Under the new code manufacturers would never pay more than 25 percent and many would pay even less.
For the life of me, I cannot understand the president’s fixation with manufacturing jobs. There is no economic justification for favoring manufacturing jobs over the service sector. The only thing this type of job gets you — other than more expensive, lower-quality goods — is votes.
There is one last part of Obama’s plan that gives me pause. The reform proposes a minimum tax on the foreign earnings of U.S. multinational corporations. No other country in the world has levied such a tax; the U.S. would be the first. On some levels this makes sense. We have a highly globalized economy. As companies move overseas, the government will lose tax revenue.
This, however, is not the logic behind the new tax. As the president said in his State of the Union address, he’s trying to bring jobs back home. If large multinational corporations are taxed by both the U.S. and their host country, the incentive to go abroad is lessened, albeit marginally.
While this may come as an awful surprise to the Obama administration, the U.S. is not the only country capable of altering its tax code in order to attract investment. For any changes we implement in our taxes to encourage companies to come back home, other nations will be able to lure them right back out faster and more completely than our lead-footed democracy can compete with.
Sorry, President. Globalization is happening. There’s nothing you can do about it, so embrace it.