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Re:Obama's tax proposal: death on tech? (1 viewing) (1) Guest

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TOPIC: Re:Obama's tax proposal: death on tech?
#875
Obama's tax proposal: death on tech? 6 Years, 12 Months ago Karma: 0  


President Obama yesterday spelled out his plan to pretty much do away with the tax deferral provision for companies with overseas subs. If passed as written, the closing of the tax loophole could do serious damage to the earnings of tech companies.

While I commend the President for his efforts to make the tax code more equitable, seems like the proposal may do more harm than good. Obviously, tech companies like Microsoft, Cisco, Oracle and IBM have sizeable overseas operations, employing lots of locals. If these companies have to repatriate their earnings--at the U.S. corp. tax rate--it could make them less competitive with their overseas rivals.

Indeed, the hit to after-tax earnings could force these tech businesses to hold the line on hiring, R&D, etc. It could also cost jobs here in the U.S., since some tech companies hire workers in the U.S. to support these overseas operations.

Sure, the tax system should be fair. But if it ends up costing American jobs, is it worth it?
 
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Last Edit: 2009/05/07 09:18 By james011.
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#876
Re:Obama's tax proposal: death on tech? 6 Years, 12 Months ago Karma: 0  
There has been much debate over what kind of stimulus the measure that allowed the repatriation of cash from foreign subs at a lower tax rate that was part of the American Jobs Creation Act of 2004 had on the economy. Many have argued that companies used that cash to pay down debt or goose their stock price by buying back shares and not creating jobs as intended. But in that debate I haven't heard it argued that jobs would have been created if companies paid a higher effective tax rate. And right now, our focus should be on job creation.
 
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#882
Re:Obama's tax proposal: death on tech? 6 Years, 11 Months ago Karma: 5  
I don't see it.

Right now, a company can create a tax haven in the Caymans. It loans money to its U.S. subsidiary. It pays no U.S. taxes on the profits because they're used to repay the loan. It's a shell game that moves profits out of the country where they aren't taxed and can't be used to create U.S. jobs.

Since the moment the company in question "repatriates" the profits it owes tax on them, the money will never enter the U.S. and will never create any jobs here. Maybe it will create jobs in the Caymans; maybe it will be used indirectly to pay dividends to investors.

All in all, I'd rather close the loopholes that allow this sort of thing. Doing so would actually eliminate the financial penalty companies now pay if they leave their profits here, which I'd think would mean more U.S. jobs rather than less.

And even if the only impact is to tax the profits, this would have a salutary effect on the deficit.
 
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#883
Re:Obama's tax proposal: death on tech? 6 Years, 11 Months ago Karma: 0  
This proposal runs a lot deeper than Cayman Island tax havens. If that's all it was, I would completely agree with you. I'm all for eliminating the outright tax evader.

It will make overseas operations - even the legitimate ones - more expensive. The fact is, many of the jobs are there because they need to be there. The market they're selling to is there. I just don't see those jobs coming home, but I could see some of them being lost.

If the changes are all in the name of raising tax revenue, I think it should be presented that way. The argument for job creation just isn't all that apparent.
 
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#884
Re:Obama's tax proposal: death on tech? 6 Years, 11 Months ago Karma: 0  
RDL -- You make a good point. I do believe that closing these kind of loopholes, in general, is the right way to go. But as MQuinn noted, a lot of these companies have legit operations in these so-called tax havens (Ireland, for example). So if they have to pay local taxes, plus U.S. taxes, they may opt to simply shut down the overseas operations.

Going to be very interesting how the tech sector--and their associated trade groups and lobbyists--attempt to whittle down this legislation.
 
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#885
Re:Obama's tax proposal: death on tech? 6 Years, 11 Months ago Karma: 5  
As is always the case, the devil will be in the details. There's a difference between closing loopholes that result in companies avoiding all taxes and taxing them twice on the same income.

Maybe I'm just overly suspicious. Over the years I've watched American business cry wolf over all sorts of matters (back in the '70s, for example, the energy industry overestimated the cost of pollution controls by roughly 1000%) ... and in our own industry we all know the SPA more or less invents its "how much software piracy costs the industry" numbers.

So the sky-is-falling concerns I'm hearing on this issue just don't worry me very much.
 
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