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The Tax Punisher

Posted By J.D. Foster, Ph.D. On May 4, 2009 @ 3:49 pm In Ongoing Priorities | Comments Disabled

President Obama’s new corporate tax proposals [1] cover two issues: tax evasion and tax punishment. He may have it half right.

The tax evasion part is relatively easy. When U.S. taxpayers maintain foreign accounts with foreign financial institutions, Obama wants the financial institution to tell the Treasury about the accounts in the same way domestic institutions keep Treasury informed. This is quite an unacceptable intrusion into personal privacy, but it is just one of the inescapable pitfalls of having an income tax system. The one bit of good news is that all those rich liberals who voted for Obama thinking they could hide their income abroad will now have to pay their taxes. The best way to get rid of a bad law is to enforce it strictly.

The tax punishment part involves punishing U.S. companies that try to compete globally by investing and producing overseas. U.S. tax policy in this area is already about the most punitive, most anti-competitive among all industrial nations, and President Obama proposes to make it more so.

The “reasoning” behind this policy is the same as that behind raising tariffs to ward off exports and protect jobs at home. Protectionism through the tax code is every bit as self-defeating and foolish as is protectionism through tariffs and import quotas. The idea is to discourage foreign investment by U.S. companies, and then maybe they’ll invest more at home. The reality is they would invest less abroad and at home.

And lest we forget, this proposal is yet another breaking of his promise not to raise taxes on individuals with incomes below $250,000 in income. (The first was when he raised the tax on cigarettes; the second was his proposal for a new cap-and-trade tax regime.) Corporations don’t pay taxes, people pay taxes, through lower wages in some cases, and lower returns to worker’s pensions and other saving in others. True, a lot of rich people own shares in U.S. corporations. But a lot of union pensions are invested in those companies, too. Collecting more taxes from U.S. corporations means less income to workers’ pensions, fewer jobs and lower pensions, too!


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URL to article: http://blog.heritage.org/2009/05/04/the-tax-punisher/

URLs in this post:

[1] corporate tax proposals: http://money.cnn.com/2009/05/04/news/economy/obama_corporate_tax_proposals/?postversion=2009050411

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