Top corporate execs that exploit U.S. tax breaks to ship jobs overseas are “Benedict Arnold CEOs,” U.S. Senator John Kerry (D-MA) proclaimed when he ran for president in 2004.
President Obama might not use that language, but clearly he shares Kerry’s belief that American tax laws need rewriting to keep U.S. jobs in the U.S. This week he announced a plan that would, in part, make it more difficult for American companies to defer U.S. taxes earned on foreign investments. (The plan also curbs foreign tax havens.) As Obama put it this week, “it’s a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York.”
Not so fast. There are also plenty of economists who believe that companies that expand overseas eventually create new and better jobs at home, as well as return greater revenues to federal and local coffers. In fact, most European countries do not tax profits made in other countries by their multinationals, so the Obama plans stands to make American companies less competitive on the world stage, some business interests are arguing.
So what’s the right balance?
A Taxing Debate
Harvard Business School professor Mihir Desai addressed this question in an interview last year with HBS Working Knowledge, The Debate Over Taxing Foreign Profits. This report provides background on current tax law and considers whether putting an end to the taxing of foreign income might just be the best course of action.
Should we as a country do more to protect jobs at home? Or do those protections ultimately lead to a weaker economy and fewer jobs in the long run? What do you think?
