The overbearing federal government is doing everything it can to thwart private enterprise. Washington imposes the industrialized world’s highest tax on corporate earnings. The United States also stands alone in punishing companies that bring overseas income back home with a double tax. This antiquated, anti-growth mentality has got to go for America to compete globally.
Foreign investment would be attracted to America and our own companies’ profits would stay at home if the top U.S. corporate tax rate were lowered and we made the switch from a worldwide to a territorial tax system so that businesses would only be taxed in the country where the profits are made. If this happened, U.S. firms would start by repatriating much of the $1.4 trillion in profits currently sitting overseas to avoid the current double taxation. This is common sense, but President Obama would rather have an excuse to unfairly bash his opponent.
At his first campaign town-hall meeting on Monday, Mr. Obama attempted to subtly link Mitt Romney’s support for a territorial tax system with accusations that Bain Capital drove jobs overseas on his watch. “By eliminating taxes on corporations’ foreign income, Gov. Romney’s plan would actually encourage companies to shift more of their operations to foreign tax havens, creating 800,000 jobs in those other countries,” the president said, citing an economic study.
“This shouldn’t be a surprise because Gov. Romney’s experience has been investing in what were called ‘pioneers’ of the business of outsourcing. Now he wants to give more tax breaks to companies that are shipping jobs overseas.”
Mr. Romney would switch to a territorial system and lower the top corporate rate from 35 percent to 25 percent. Vice President Joseph R. Biden Jr. announced in March that the White House wants to go the opposite way; it would hike corporate taxes to 39 percent for profits made overseas.
The Romney campaign blasted the president’s claim. “After spending three years pushing policies that drive jobs overseas and sending taxpayer money to foreign-owned companies, it’s clear President Obama doesn’t have a clue when it comes to job creation in America,” said Andrea Saul, the Republican candidate’s spokesman. “Mitt Romney has a comprehensive plan to reform the corporate tax code that will lower rates, get rid of incentives for firms to create jobs in other countries, and encourage the kind of economic growth President Obama has been unable to deliver.”
It should come as no surprise that Mr. Obama’s study was done by liberal Reed College Prof. Kimberly A. Clausing — a donor to the Obama campaign. Her analysis fails because she omits the key point of lowering the corporate rate with a transition to the territorial system. Even Mr. Obama’s own jobs council admitted adoption of a territorial system would “eliminate the so-called ‘lock-out’ effect in the current worldwide system of taxation that discourages repatriation and investment of the foreign earnings of American companies in the U.S.”
In 2005, Congress offered a one-year reprieve, lowering the re-entry tax to 5.25 percent. According to Americans for Tax Reform, $318 billion came flooding to our shores as a result of the temporary change. If Mr. Romney’s permanent plan were to take effect, we’d see even more capital and new jobs come home at a time when our dragging economy desperately needs a boost.
Emily Miller is a senior editor for the Opinion pages at The Washington Times.