Herman

Cain

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May 11, 2009

Obama’s Intimidation Tax

Eight hundred more IRS agents, closing tax loopholes used by U.S. companies that make money in other countries, and calling businesses “tax cheats” for using the messed up tax code as it is written, is going to inspire lots of multinational companies to create more jobs here in the USA.

Not!

This plan, announced by the president and model tax patriot and Treasury Secretary Tim Geithner, will do just the opposite. And that $210 billion they expect to recoup over 10 years will be long forgotten when the money does not materialize.

Economist Dan Mitchell of the Cato Institute described the proposal this way while appearing on the Fox News Channel:

“This is a spectacularly misguided proposal,” Mitchell said. “In a global economy, you don’t saddle your companies with extra costs. No other country in the world does this kind of crazy policy.”

“What Obama’s proposal would do is it would make the double taxation they pay to the IRS even worse,” Mitchell said. “The Germans don’t do that, the Canadians don’t do that. Even the French, who love taxes, don’t do this kind of crazy policy. We are literally shooting our companies in the foot while other countries are making it easier for their companies to compete around the world.”

Liberals who believe in more heavy-handed big government will not like Mitchell’s assessment, but he is absolutely right.

Now here is an old and non-original idea the administration could have used to generate more revenue much faster. Reduce the tax on foreign profits to zero. This would generate approximately $200 billion dollars a year instead of a questionable $21 billion annually.

It worked in 2003, when the tax on repatriated profits was reduced to about 5 percent and generated more than $350 billion in two years. Maybe this was not a consideration because it worked when George W. Bush was president with a Republican-controlled Congress.

Additionally, the administration would not have to hire an additional 800 IRS agents to browbeat more companies who have tried to comply with the laws in the first place. The president’s announced plan is just one more example of using the “bully” in “bully pulpit” to try to intimidate businesses.

Another example was when a bank, TCF in the Twin Cities, wanted to return a TARP loan that it did not want in the first place. The Obama Administration would not accept the repayment under the agreement terms, without the bank making an additional concession.

Or how about the White House threatening to “unleash the full force of the White House press corps” to destroy someone’s reputation if they did not go along with concessions being demanded during the Chrysler bankruptcy negotiations.

Intimidation of businesses will backfire. It might cause a business to take it on the chin once in order to get on with their life, but it will also cause a lot of businesses to move their operations out of the United States altogether.

Incentives in a free market system always work better than intimidation. So far in the Obama Administration, we have seen very little incentives for businesses and a whole lot of intimidation. 

As the late Jack Kemp would say, “If you want less of something then tax it. And if you want more of something, then un-tax it.”

U.S. businesses have to compete globally with the second-highest corporate tax rate in the world, a dysfunctional tax code and now a new “intimidation tax”.

There will certainly be a lot less tax revenue, and a lot more resentment.

© 2009 North Star Writers Group. May not be republished without permission.

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