What Else Could the Smartest Man Ever* Have Said?

The U.S. tax code has made it "all too easy for a...small number of individuals and companies to abuse overseas tax havens, to avoid paying any taxes at all," the president said. "And 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."
Wall Street Journal (link here for subscribers)
May 5, 2009

Obama raised the specter of "India" which in populist circles is code for. . . .actually it's not code. It has no hidden meaning. It explicitly means greedy corporations employing non-unionized cheap foreign drones to screw 'merican workers. You remember, the bitter clingers. Such were they named, clutching their guns and bibles, at least when Obama was running for office. I'm confident his view of flyover country's mass unwashed has changed now that he's in office.

I could easily write an essay about the virtues of "outsourcing." You know, how all organizations that hire another have "outsourced." How hiring the best workforce one's budget allows is what profit seeking companies are supposed to do. How a business often needs to be in physical proximity to its foreign customers. How a global footprint is smart financial and operational risk management. How commercial ties strengthen and enhance diplomatic relationships. Tax avoidance is a big reason, no s&!t. But I realize those arguments mean nothing to the guy who lost his job and to that portion of the elected class inclined to stoke resentment for their crass power grabs. So I'll hold off on the essay, but will ask one question:

If Obama really is smarter and better tempered than the garden variety donkey or elephant, instead of fanning resentment's flames, why not propose lowering the tax burden on the job created in Buffalo instead of raising it on the one created in Bangalore?

*sarcasm alert


Frank said...

I'll answer the question you pose in your last paragraph with an example. Say that worker in Buffalo is an IT professional making $100,000 per year. The most tax he would pay (single filer, no deductions) is around $20,000. His outsourced job in Bangalore costs his (former) employer around $30,000 per year. How much of a tax break do you have to give our man in Buffalo so he would take his job back at $30,000/year so his employer can be "competitive"?

You post raises a few other questions. Are 18,000 corporations and subsidiaries really headquartered in one five-story office building in the Caymans? About half of these companies get all the benefits and protections (courts, military, roads and other infrastructure) of being a US company and avoid paying US taxes. Your high taxes are subsidizing this behavior.

Seems to me that Obama is on the right track here.

The Daily Pander said...

Are they doing anything illegal? No, they're responding to incentives Congress creates to buy votes or protect favored constituents or or or. WTF knows why Congress creates this crap?

Lower rates, fewer deductions. Put the tax avoidance business out of business.

The Daily Pander said...

Also, BHO is talking (at least in that paragraph) about outsourcing for tax arbitrage purposes. The Bloomberg story refers to U.S. companies that domicile offshore for tax arbitrage purposes.

What happens to our man's job in Buffalo if Congress gets out of the social engineering business?

Chris Janc said...

Frank, do you really believe that a multinational that has an option will not consider actually MOVING its headquarters overseas? Making the US less competitive with respect to tax policy may increase revenues in the short run but in the long run it will encourage existing corporations to consider relocating HQ operations overseas and will make either US stocks or US manufactured goods less attractive as corporations are passthrough entities.

More concerning, since capital goes where it is most loved, this will give Europe, India, China and others a competitive advantage in attracting funds for new ventures. Even Obama recognized this which is why he created the R&D tax credit, to try to offset some of this effect (less than it needs to be, in my opinion).

Chris Janc said...

One more thing. I cam across this quote today, completely by chance. It is from Judge Learned Hand:

"[There is]...nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right for nobody owes any public duty to pay more than the law demands...to demand more in the name of morals is mere cant."